Generally, the lease agreement will outline the requirements for tenants at the end of a commercial lease. For instance, the lease may state that you must leave the premises clean and in original condition, without any damage. Alternatively, you may have extensive make good obligations. Further, you may have an option to renew your lease or stay on as a monthly tenant. Therefore, it is crucial that you understand the lease terms so that you can comply with them before the termination date.
In this article, we will explore;
- the option to renew your lease;
- what your make good obligations are; and
- what will happen to your security bond.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Exercising an Option to Renew
Your commercial lease agreement may contain an option to renew clause, which allows you to renew your lease for a further fixed term on the same terms and conditions after your initial lease term expires. Moreover, the lease agreement will determine how and when you can exercise the option to renew.
If you have the option to renew, you should consider when you wish to exercise this option before the window to renew expires. Additionally, you may forfeit your option to renew if you fail to notify your landlord about your intention to renew. Further, you must do so within the set period and in the correct format.
If you fail to notify your landlord about your intention to renew, your landlord may require you to vacate the premises at the end of the term and offer the property to another tenant. Alternatively, you may be able to negotiate a new lease on new terms and conditions which may be less favourable to you.
Your option to renew may also change according to the tenant’s compliance with the agreement during the initial lease period. For example, if you breach your lease during your stay, your landlord may refuse to renew your lease.
Staying in the Premises With No Option To Renew
If there is no option to renew the lease, but you wish to stay on the premises, you may still have other options. For instance, you could negotiate a new lease or an extension of the term of your current lease with your landlord. Although, you should ensure you initiate such negotiations well before your lease term is up.
Additionally, it will be helpful to have a good understanding of the terms of your commercial lease, including those:
- you are willing to agree on;
- that may be a dealbreaker for you; or
- that were an issue in your previous lease.
Alternatively, you may seek your landlord’s permission to remain on the premises on a month-to-month lease on the same terms and conditions.
Holdover Clause
A holdover clause allows the tenant to remain on the premises on a month-to-month lease under the same terms and conditions, with the landlord’s consent. However, you should be aware that being on a monthly holdover means either party may terminate the lease with one month’s notice, or the landlord could increase the rent for the next month. Therefore, this is not a suitable long-term solution.
Your landlord may need to give you written notice about whether they intend to offer you a new lease or, whether they want you to move out at the end of the current term if:
- you are a retail tenant;
- retail leases legislation (such as the Retail Leases Act 1994 NSW) applies to you; and
- the lease does not contain an option to renew.
Make Good Obligations
In a lease, a make good obligation requires you to leave the premises at the end of the lease in the same condition you found it.
Some common make good obligations include:
- removing any fixtures and fittings;
- repairing any damage to the premises (such as repainting the walls or replacing the carpet); and
- removing any other additions you make to the premises and restoring it to a base building standard.
Further, you will need to consider and negotiate these terms before you sign the lease.
Collecting Property After the End of a Lease
Generally, the lease agreement will outline what will happen to any property left behind at the end of a lease. Further, a lease will typically include provisions that dictate what happens to any property that the tenant does not remove. Additionally, the lease will specify a period after which that property will be ‘abandoned’.
If the lease agreement does not address the property the tenant leaves behind on the premises, then the landlord must keep your property safe until you retrieve it or until they can prove the tenant abandoned the property.
Additionally, your landlord must give you a reasonable opportunity to remove your property regardless of how the lease ends. As you no longer have a right to enter the property, you must arrange a suitable time with your landlord to retrieve any remaining property.
Once the property is ‘abandoned’, the ownership of the property passes to the landlord, and they may deal with it as they see fit. This may include selling or disposing of the property. The landlord may seek to claim costs from you if they incur costs related to the:
- storage;
- delivery; or
- disposal of your property.
Security Bond
Security bonds for commercial properties often form a personal or bank guarantee. Further, the lease agreement will outline how to manage these security bonds and return it to the tenant.
Typically, a landlord must return the security when the tenant complies with all obligations under the lease. For example, this might include any make good obligations upon vacating the premises.
If your lease was a retail lease, the retail legislation might dictate how and when your landlord has to manage and return your security.
Key Takeaways
Your commercial lease agreement will typically outline your obligations as a tenant for when your commercial lease ends. Sometimes your obligations may be as simple as leaving the premises neat. Alternatively, they may require you to leave the premises in the condition that you found it. It is crucial that you understand your obligations so that you can comply with them and do not risk losing your security bond.
If you would like some assistance understanding your obligations under your lease, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
In a lease agreement, a make good obligation requires you to leave the premises at the end of the lease in the same condition you found it in.
A holdover clause allows the tenant to remain on the premises on a month-to-month lease under the same terms and conditions, with the landlord’s consent.
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