Often in business contracts, there will be a ‘make good’ cause. This is particularly so when it comes to commercial leases. If you own a business and are considering leasing a commercial premises, it’s important to know what your obligations are under make good clauses. In a nutshell, make good clauses refer to the parts of a lease contract that set out how a tenant should leave a property at the end of the lease term. This is after the tenant has left the premises and returned the keys back to the landlord.
It sounds simple. Leave it as you found it. However, make good clauses are some of the most heavily scrutinised and contested aspects of commercial leasing. Accordingly, we have outlined some important considerations regarding make good clauses for you below.
Important steps
There are a number of precautionary steps that you can employ to help prevent any disputes regarding make good clauses. These are steps you can take at the start of your lease, during your lease, and at completion.
- Ensure you are clear about what is outlined in your lease agreement. Seeking the help of a contract lawyer is recommended in this process. The Australian Government business website also advises sourcing the assistance of legal professionals throughout this process.
- Photograph the property in its original state prior to the commencement of the lease. Photograph during your lease at periods at your discretion. And photograph the premises at the end of the lease. This way, if there are any disputes, you can quite clearly display with evidence the state that the premises was in prior to the lease.
- Take good care of the premises. However, it’s understandable that most commercial premises will incur some ‘wear and tear’. Yet the greater emphasis you place on maintaining your premises, the more likely it will be that you will fulfil your make good clause with ease.
Changes during the lease
Some commercial leases can exist for a long term. They generally range between 3 to 25 years. As a business owner, you would know that a lot can change in a year, much less 25 tears. Therefore, it is important to know how best to approach your situation in the event that significant changes occur. Some of the following issues may arise:
- You may need to transfer your lease to a new tenant. Assignment is the common term for this. The new tenant generally takes the property in its state when the original tenant assigns the lease to the new tenant. Subsequently, they inherit the make good obligations of the original tenant. Therefore, damage made by the prior tenants is something the new tenant can sometimes be unwittingly responsible for. Ensuring that all parties are aware of what they are inheriting is essential.
- If your business needs to make adjustments to the property during your lease, it is important you include the landlord in this process. Some lease agreements may prohibit certain alterations or addition of fixtures by way of equipment or structural installations. However, it is always worth checking with your landlord to see if this is possible prior to making such arrangements. Even if you know you will be able to remove added fixtures, keeping your landlord well informed is important. It will also make it more likely you honour your make good clause at the end of your lease.
Damage and insurance
Unfortunately, accidents can occur and the unforeseeable happens. Your make good clause will be affected if your commercial premises is vandalised, damaged, or altered by a workplace accident. In most commercial leases, the tenant is responsible for the rented premises including walls, floors, fixtures and inclusions. The landlord requires the tenant to repair and maintain the premises during the lease term. However, the landlord is generally responsible for repairing and maintaining major structural aspects of the building. This includes the roof, and the building systems contained in it such as common areas and lifts.
In the event that damage does occur, depending on whether it is structural or more cosmetic or superficial will depend on who is responsible for fixing it. Therefore, as a business owner, it is recommended you review your insurance options prior to engaging in a commercial lease. You never know when you might need it.
As you can see, having a make good clause in a lease is one thing, but accounting for external factors and disputes that arise from that is another thing all together. Circumstances can change, and the unforeseen can happen. As such, it is always wise to get as much information about all potentialities at the commencement of a lease. Having in place provisions that account for tenant changes, unexpected damage, or allowances for modifications to the premises are all factors to consider from the outset. Keeping a transparent and open dialogue between the lessor and lessee will help this no end. If you are involved in a lease dispute or are having trouble seeking clarification on recourse afforded to you, it may be worthwhile consulting with a commercial lease lawyer.
