However, depending on the commercial asset, this may not be practical. With most leases lasting five years or more, there is usually a requirement for the tenant to regularly repaint the walls and replace floor coverings such as carpets. “Without such proof, your cost expenditure can be significant and you can burn time and money having a dispute over what the actual scope of the make good clause is.” 3. “If the tenant doesn’t have a condition report in place at the end of the lease, they should go back through their records to see if there’s anything they can use to point to what the actual condition of the property was,” he said. Mr Lugo advised tenants to organise a condition report at the start of their lease, or at least obtain some photos of the property so that when the lease expired, they’d have proof of its condition.ĭon’t forget to keep an up-to-date condition report. “The problem is that these reports aren’t compulsory so they just aren’t done and then five years down the track, you can have a big dispute as to what the property’s original condition was.” “Without a condition report, it’s likely that you’ll end up in a dispute around the scope of your make good clause,” he said. However, tenants often forget to organise and keep up with these reports, according to Mr Lugo. While not compulsory to a commercial lease, condition reports can ensure expiry date disagreements over making good clauses with landlords never happen. “Make sure a lawyer reads your lease and see what your make good obligations are so you understand what you need to do … and so you don’t over commit or agree to do something which is beyond your agreed obligations,” the Victorian HWL Ebsworth lawyer explained. Inexperienced tenants, in particular, can find make good clauses very onerous, according to real estate and projects special counsel, Rupert Lugo. “But if the wording of the lease is ambiguous, or it could be interpreted as meaning that the tenant has to bring it back to some new state, a scrupulous landlord might try to take advantage of this.” “Most reasonable landlords will know that the property will run down over time and won’t expect the tenant to take it back to original condition. “Tenants should also ensure ‘fair wear and tear accepted’ is in the clause. “Tenants need to be careful that the lease specifically says that the property needs to be returned to its status at the commencement of the lease,” he explained. One of the main problems that can arise with make good clauses is whether the property must be returned to its original condition or to a brand new state, according to FC Lawyers’ associate director Tom Wood. “Knowing what the make good clause consists of at the lease outset also allows you to accrue any exit costs over the term of the lease so you won’t be out of pocket when it expires.” “If there is no make good clause in the lease, ensure one is added so you know what you’re liable for. “When going into a lease where a fit-out or changes are necessary, talk to the landlord about what you’re going to do and have an agreed plan written into the make good clause,” the managing director explained. Grow Capital’s Nick Wormald advised tenants to always begin their lease with its end in mind. Yet even if a make good clause doesn’t appear in the lease agreement, a landlord may be able to take common law action against tenants if they don’t return the premises to its original condition. The clauses themselves can also be ambiguously worded and be either inserted into the lease in a hurry or overflow with inclusions and exceptions. Tenants need to be mindful of what their make good clause entails before they sign their lease especially with leasing agents and tenant representatives often not mentioning this clause or ensuring it’s included. So before you return your property keys, you will need to check 1. However, some landlords require tenants to strip the property back to a bare shell including removing floor carpets. Some owners may see the tenant’s property changes as an improvement and will be happy for them to remain after they leave while others may agree to the tenants’ removing only their own fit-out changes and details. These clauses are most likely to appear in an agreement where the tenants lease the building as a shell or intend to change an existing fit-out and will differ depending on owners and assets. Make good clauses require commercial tenants at their lease’s expiry to return their property to the condition it was in at the time of the lease’s commencement. This includes the crucial make good provision which requires tenants to return the property to its original condition at the end of their time there. Commercial leases come with standard clauses to ensure a property can be tenanted again once its current lease expires.
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