Headaches and protracted negotiations at lease expiry could be avoided by well drafted Make Good clauses and thought out strategies prior to lease commencement.

Building owners and tenants can be poles apart in their understanding and interpretation of repair, maintenance and other make good related clauses. This in turn can lead to significant unforeseen costs, disputes and delayed income. 

Attention to the lease definitions and obligations together with some good asset management strategies can help to avoid such situations. 

Your lease and make good check list in this regard could include some thought around the following:

Premises

• What are the physical elements and spaces under the obligation of each party?

Commencement Date

• Does the obligation for repair, maintenance and make good extend to any previous terms of occupation perhaps under an earlier lease or option? 

Condition as at Commencement

• If the tenant is expected to return the property back to a condition ‘as at commencement’ – can anyone recall what this looked and felt like?
• Is it well defined and recorded in a schedule of condition with plans and photographs? 

Base Building 

• Which building elements, fabric, finishes and building services comprise of the base building and in what condition and configuration?

Above the Ceiling Line

• Who is responsible for fit out services ducts and fixings, cables and cable trays etc and the reinstatement of any relocated base building plant?
• What about services that pass through the ceiling line, such as sprinklers and sprinkler heads? 

Services Risers

• Who is responsible for cables and services within the risers and back to source?

Tenant Alterations

• Who did what work and when?
• The lease will typically have provisions for alterations but should the design, specification, methodology, timing and approval process be defined?
• Should this include the make good works of such at expiry?
• Should the option for contracting out of make good be considered for significant building improvements?
• Are any incentives or fit out contributions understood?
• Does the building owner own any of the fit out?    
• Were the tenant alterations undertaken under a previous lease for the same tenant – who has the responsibility to make good at the end of the new term? 

Express Covenant

• If an owner has certain expectations then they should be clearly stated. For example, if an owner expects that carpets are to be replaced prior to lease expiry then such a provision should not be muddied with ‘fair wear and tear’ clauses or other limitations.

Building Restrictions

• Should reference be made to ‘building rules’ or ‘tenancy guidelines’ which may include certain restrictions on hours of work, use of the goods lift or loading dock?

In collaboration with our client’s lawyers we have developed a number of strategies to protect Landlords and Tenants against the risks of the Make Good cycle. We also have extensive cost data relating to Make Good projects and settlements which can provide a quick benchmark comparison, so contact us now.

Contacts

Transaction & Asset Advisory
Rob Howells – 03 9915 6300 – rhowells@napierblakeley.com
Alastair Walker – 02 9299 1899 – awalker@napierblakeley.com
Gavin Peach - 02 9299 1899 – gpeach@napierblakeley.com
Paul Mazoletti – 07 3221 8255 – pmazoletti@napierblakeley.com

Development Advisory & Quantity Surveying
Craig Smith – 03 9915 6300 – csmith@napierblakeley.com
Peter Hammond – 02 9299 1899 – phammond@napierblakeley.com
Paul Cosker – 07 3221 8255 – pcosker@napierblakeley.com
Adam Greene – 07 3221 8255 – agreene@napierblakeley.com

Property Depreciation & Insurance
John Mathew – 03 9915 6300 – jmathew@napierblakeley.com
Peter Guerra – 02 9299 1899 – pguerra@napierblakeley.com
Peter Osborn – 02 9299 1899 – psoborn@napierblakeley.com

Sustainable Property Solutions
Peter Frith – 03 9915 6300 – pfrith@napierblakeley.com
Craig Ryan – 03 9915 6300 – cryan@napierblakeley.com
Stuart Winton – 03 9915 6300 – swinton@napierblakeley.com