Make good obligations, also known as lease exit obligations, are often overlooked but can be one of the most important clauses within a lease. The make good clause generally requires the Tenant to bring the premises back to its original condition at the commencement of the lease.
Often the clause can be very onerous on the Tenant and it is imperative that the make good conditions are agreed up front during the negotiation of the lease.
Based on our 30+ years experience in negotiating make goods, here are our tips on what should consider from the start of your lease to cover your make good at the end:
- The lease should clearly define the responsibilities of both the Tenant and Landlord regarding make good when the lease expires. The more detail, the less chance there is for uncertainty, which can lead to disputes between the parties.
- Photographic evidence and a schedule of condition of the premises (condition report) prior to the Tenant taking possession is very important. Often at the end of the lease, the original people who negotiated the lease may no longer be involved and without physical evidence of the condition of the property it often leads to disputes over who is responsible for what damage.
- The Tenant and Landlord should start discussing the make good works well before the lease expiry date. Once the scope of works for the make good are agreed, they should be recorded in writing.
- Often the lease will state that the Tenant is liable for rent and outgoings during the reinstatement period, and depending on the works, this could be a significant amount of time.
- The Landlord may be willing to receive a payout figure in lieu of the Tenant undertaking the works. It is beneficial to engage a property consultant to act on your behalf to ensure you are negotiating the best outcome for yourself at the end of the lease.
- When the make good works have been completed or agreement has been reached, it is important to acknowledge this in writing between both parties. The Tenant needs to have comfort that the Landlord is satisfied with the make good, ensuring they can’t claim any further losses or rent from the Tenant going forward.
- If the Lease is being assigned, the make good provisions should be carefully considered by the incoming Assignee.
- If the Premises has been sub leased during the Term then the Tenant must ensure the Sub Lease expires earlier than the Head Lease to allow enough time for the Tenant to complete the make good works required under the Head Lease.
We have extensive experience in negotiating make good provisions on behalf of the Tenant ensuring you are not left with any nasty surprises or significant unbudgeted expenses at the end of your lease term.