How can Landlords and Tenants Avoid 'Make Good' Disputes?
Most leases contain what is known as a ‘make good’ clause which will specify what a tenant is obligated to do to the premises at the expiration of the lease or upon vacating the premises.
However, more often than not, standard provisions are included when a lease is drafted and the parties do not properly consider before entering into a lease, what they expect at the end of the lease. Where make good provisions are not properly considered at the outset, disputes can often arise down the track.
Disputes between the parties commonly arise in circumstances where:
- Each party has a different view on what constitutes the ‘make good’ obligations under the lease; or
- The impact the provision actually has on the parties’ business has not been considered.
What does ‘make good’ really mean?
The term ‘make good’ refers to the condition or state of repair that the tenant must leave the premises in upon expiration of the lease or vacation of the premises by them.
It is commonplace for such a provision to require the tenant to remove its installations and other tenant’s property and to make good any damage caused in installing or removing them. A commercial lease also commonly states that the premises must be delivered up to the landlord in the same condition as at the day the lease commenced, fair wear and tear excepted.
However, rarely the parties consider:
· Whether there is a need for the premises to be reinstated to a ‘basic shell’; or
· Whether any approved structural alterations need to be left in place; or
· Whether the landlord is happy to retain and acquire the tenant’s fit-out.
Disputes will almost certainly arise in circumstances where the make good obligations are not clearly defined. This is often because the tenant will want to spend as little time and expense as possible in reinstating the premises whereas the landlord will more than likely want the tenant to do as much as possible to enable the premises to be fit for the next tenant that may come along.
How can disputes between landlord and tenants be avoided in relation to make good obligations?
It is important that the make good obligations of the tenant be considered by the landlord and the tenant at the outset during the negotiation stage. This will ensure expectations are clear upon the expiry (or earlier determination) of the lease and the tenant vacating and will reduce the risk of a dispute arising later down the track.
Our property team at Burke & Associates Lawyers have a depth of experience to assist with your leasing negotiations and drafting requirements. Please contact Kristy Muhlhan or to discuss how we may assist you with your leasing matters.