In brief - Common problems are lack of precision and lack of understanding of obligations
The major problem with make good at the end of a tenancy is the lack of precision and understanding of the obligations of the parties. This can be avoided by giving sufficient thought to these arrangements and having appropriate discussions at the time of the initial lease negotiations.
Landlords and tenants tend not to think about the end of the lease
The reason why make good obligations become a problem is that people do not give these arrangements sufficient thought nor have appropriate discussions about them at the time of lease negotiations. What is going to happen at the end of the lease seems to be an afterthought in discussions when a new lease is being negotiated.
The reasons for this are obvious. The parties are focused on the commercial terms of the lease, getting the deal down quickly and having the tenant get access for fitout and occupation as soon as possible, whilst meeting the landlord's requirements for security under the lease.
Causes of disagreement between landlords and tenants on make good obligations
Some of the difficulties that arise with respect to what make good is required at lease end are the following:
- Lack of precision as to exactly what the make good obligations entail.
- Arguments about what comprises the tenant's property. This comes about by virtue of who paid for the fitout (where this may be part of the lessors' lease incentive) and items that may have been left by a previous tenant or occupant.
- The issue with respect to replacement items.
- Use of general descriptors for the expected nature of the make good, e.g. reinstating the condition that the premises were in at the lease commencement date or "base building" condition.
- Lack of clarity as to when the make good has to be done and what happens if the make good is incomplete at the lease end date.
Lease should specify precisely what the tenant needs to do at the end of the lease
These issues can be addressed by the following:
- Making sure that the lease fully sets out what the tenant's obligations are. Do not use general expressions such as making the premises good to the condition they were in at the commencement of the lease or back to "base building state" without providing specifications.
- Have an agreed conditions register (comprising a written and/or photographic record) of the state and condition of the premises at the commencement of the lease, signed by lessor and the lessee.
- Identify items to be left and to be removed.
- Clarify whether the tenant is to remove all items, even if they are not owned by the tenant, such as items that the landlord has paid for as part of its lease incentive (and whether or not those items are owned by the landlord or the tenant for depreciation purposes) or items installed by a previous tenant which the new tenant is to have the benefit of.
- Specify what the tenant is required to do with respect to services, cabling, lighting, phone systems, security access systems and the like.
- Stipulate clearly what is to happen with items that are left in the property and are not removed. Are they forfeited, can the landlord assume a proprietary interest in them by virtue of the fact that they are abandoned or can the landlord remove them and charge the tenant?
- Make it clear what the consequences are if the tenant does not remove items and effect the clearly set out make good obligations by the lease end date (eg rent continues to be paid until it is done or the tenant is liable for any losses that the landlord incurs by, for example, not being able to have a new tenant move in until the items are removed).
Don't leave discussion of make good arrangements until the tenant is ready to vacate
Landlords and tenants have to realise that make good obligations are a principal and major aspect for consideration that needs to be dealt with at the commencement of lease negotiations, rather than leaving this discussion until the tenant is ready to vacate.
By properly addressing this matter when the lease is originally negotiated, unpleasantness and uncertainty at the end of a lease can be avoided.
Precision is what is essential.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.