Most commercial and retail leases have clauses that outline what a tenant’s obligations are regarding the condition of the premises when they vacate – basically, how they must ‘make good’ or restore the property at the end of the lease term.

 

common ‘make good’ provisions can require a tenant to:

  • Remove all fixtures and fittings which the tenant installed [e.g. partitions, signs] and any damage caused by the installation removed or repaired
  • Return the premises to the condition it was in at the start of the Lease
  • Repaint or refurbish the premises inside and out
  • Remove all rubbish from the premises, and
  • Generally leave the premises clean and tidy.

This is not an exhaustive list and often clauses go beyond the ‘standard’ and can include overly onerous provisions on tenants.

 

so, why do these clauses matter?

Usually, the tenant has to ‘make good’ within a specified timeframe, often as the lease nears the end or within the final days of the lease term. So failure to understand the obligations of this clause can be very costly for tenants and disputes often arise out of what constitutes ‘make good’ or fair wear and tear.

If a tenant fails to comply with the clause then the following may happen:

  • The tenant may still be liable for rent and outgoings during the period the ‘make good’ work is carried out,
  • The landlord may engage their own contractors to conduct the ‘make good’ at the tenants expense, and/or
  • The landlord may enter possession of the premises and forfeit the tenants fixtures and fittings.

 

what about scenarios where the lease is assigned to another party?

When a tenant takes over the premises from another party, their ‘make good’ obligations often are in relation to the condition of the premises at the start of the original lease, not the date they take over the premises.

Where this is the case, it’s imperative that a tenant conduct thorough due diligence and negotiate any assignment of lease with the existing tenant to make sure they’re adequately protected.

 

how to avoid lease disputes with a ‘make good clause’

As mentioned earlier, the costs of ‘make good’ can be significant and its important to avoid costly and protracted disputes where possible.

 

tips for tenants

 

  1. Read the lease terms carefully and engage an expert commercial leasing lawyer to negotiate these clauses on your behalf, often flexibility can be achieved.
  2. Take extensive photos and document the condition of the premises at the commencement of the lease.
  3. Consider engaging an expert to prepare a condition report.

 

tips for landlords

 

  1.  Ensure your ‘make good’ obligations are clear, descriptive and achieve your desired outcome, discuss with your commercial lawyer the importance of this clause.
  2. Keep a record of the condition of the premises and conduct a thorough exit condition report.
  3. Ensure you have a sufficient security bond to cover any damage or costs should your tenant fail to meet their ‘make good’ obligations!

 

need a hand?

If you’re looking to enter into a commercial or retail lease, feel free to reach out to our team of legal experts on 1300 BDEPOT or legal@businessdepot.com.au.

 

get more insights

If you found this article useful and you’d like to get more information on all things legal, you can sign up to our mailing box below!