A commercial make good clause is a critical aspect of many commercial lease agreements in Australia. This clause outlines the tenant’s responsibilities for restoring the leased premises to a specified condition at the end of the lease term. Understanding the make good clause is essential for both landlords and tenants, as it can have significant financial and operational implications. Here’s an in-depth look at what a commercial make good clause entails and its importance in the commercial property market.
1. Definition and Scope
The make good clause, also known as a reinstatement clause, refers to the tenant’s obligation to return the leased property to its original or agreed-upon condition when the lease ends. This may involve removing any alterations or additions made during the lease, repairing any damage, repainting, and cleaning the premises. The specific requirements of the make good clause can vary significantly depending on the terms of the lease and the nature of the property.
2. Types of Make Good Obligations
Make good obligations can range from minimal to extensive, depending on the lease agreement. There are generally three types of make good obligations:
- Base Building Condition: The tenant must restore the premises to the condition it was in before the lease commenced, which often includes removing fit-outs, fixtures, and fittings.
- Original Condition: The tenant is required to return the property to the condition it was in at the start of the lease, taking into account normal wear and tear.
- Modified Condition: The lease may specify that the tenant only needs to carry out certain works, such as repainting or minor repairs, rather than a full restoration.
Understanding which type of make good obligation applies is crucial for both the tenant and the landlord to avoid disputes at the end of the lease.
3. Financial Implications
The costs associated with fulfilling a make good clause can be substantial, particularly if the tenant is required to remove extensive fit-outs or make significant repairs. For tenants, it’s essential to budget for these potential costs well in advance. On the other hand, landlords need to ensure that the make good obligations are clearly defined in the lease to avoid unexpected expenses if the tenant does not meet their obligations.
4. Negotiating the Make Good Clause
Negotiating the make good clause is an important part of the lease agreement process. Tenants may seek to limit their make good obligations by negotiating a less stringent clause, such as only being responsible for returning the property to its original condition minus normal wear and tear. Conversely, landlords may want to ensure that the tenant fully restores the property to maximise its appeal to future tenants. Both parties should seek legal advice during this negotiation to ensure that the clause is fair and enforceable.
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