Understanding Your Lease - Your make good obligations and some common traps to avoid
The success of your business is often dependent on its location. When you find a premise in the right location it is tempting to agree to the lease without thinking about what you might be accountable for at the end of your lease. It is essential that you review the make good obligations as set out in the lease and take the time to understand your obligations when exiting the premises as well as during your time as tenant.
Making good the premises at the end of the lease term can be a very expensive exercise, so it is important to consider the make good implications in the lease before you sign on the dotted line. One main cause of disputes between landlords and tenants is that each party has very different expectations when it comes to refurbishing the premises upon the tenant vacating. Set out below are some steps that you should into account when looking at make good:
Meet with the landlord
It may be worthwhile meeting with the landlord directly to have a discussion about their make good expectations. From this meeting, you will be able to determine whether they require a full make good of the premises (i.e. repainting and replacing existing floor coverings), or whether the landlord will just require you to remove your stock and fittings. You may also be able to determine just how much you will be required to spend to complete your make good under the lease.
Make a list
Most tenants do not think about their make good obligations until it is too late. A prudent tenant should prepare a list of what they will remove from the premises upon vacation, and submit this to the landlord while negotiating the lease. This will show the landlord that you are organised, and if the landlord agrees to this list, then each party will know what is required at the end of the lease term.
It is important to be precise in drafting the make good obligations in the lease. You should review the clause in the lease dealing with make good carefully, and if you want to make any amendments to the clause, then bring this up with the landlord. If the make good obligations are clear in the lease, then there will be no arguments around interpretation of the lease when it comes time to vacate the premises.
Arrange for a cash payment in lieu of make good
If you feel that the make good obligations in the lease are too onerous, and the landlord will not agree to amend them, it may be time to think about approaching the landlord and offering them a lump sum cash payment in lieu of carrying out the make good under the lease. This may save you time when relocating to another premises at the end of the lease term, as you will not need to perform the make good obligations, and you can carry on business as usual.
It is important that you complete your make good obligations before the terminating date of the lease. If you fail to do so, then most leases will contain a clause which states that rent will continue to be payable until such a time as the make good obligations are completed. This could be a very costly exercise for your business, as you will be likely paying rent for an alternate premise at the same time.
If you are still unsure of your make good obligations, it is essential you seek expert legal advice when reviewing and negotiating your lease.
If you need further advice on leasing please contact our experienced Property Lawyers:
Andrew Grima, Principal
Phone: +61 2 9895 9271
Dean Claughton, Lawyer
Phone: +61 2 9895 9256