Make good clauses and office fitout
Make-good clauses in your lease agreement exist to protect landlords. Knowledgeable landlords enter into leases with the understanding their premises will be returned in the same order (subject to fair wear and tear) it was at lease commencement. If you are planning a significant office fitout, look closely at the make-good clause.
Poor understanding can create a trap for tenants. Typically, a lack of understanding and poor or no advice can result in tenants being liable for a significantly higher make-good cost than is reasonable. Tenants need to be advised by property experts; many tenants rely on legal advisers to provide lease advice and representation when often their expertise is limited. “Fair wear and tear” is a term that can protect tenants and should be included.
The phrase “fair wear and tear” has different definitions. Generally, a tenant should expect to leave the condition of the premises at lease expiry in the same condition (subject to fair wear and tear) and same configuration as when the lease started. However, this expectation could vary if, for example, the tenant inherited a previous tenant’s office fitout which was considered to be of value. The fit-out cost saving could potentially more than offset the added make-good cost. The description of the extent of the make good should be clear. Vagueness can result in dispute and litigation.
You shouldn’t compromise on the office fitout you want. It is important the leased space is made to work for the tenant’s business even though there may be a cost to make good at lease expiry. To not sufficiently alter an existing fit-out for the purpose of reducing make-good costs may be counter productive if the space is then less able to be used efficiently.
Paying out at the end of your lease may work better than a make good. Either option can be preferable depending on cost and effort. However, a pay out has the benefit of ensuring an agreement with the owner. To undertake your own make good may not necessarily satisfy the owner and result in dispute.
Richard Montague is the Managing Director of BEM Property. For more information on BEM Property visit www.bemproperty.com.au
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