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When your lease agreement expires, you should make sure that you know what your options and obligations are as a tenant. These will vary depending on whether you intend to remain on the premises or return the premises to the landlord. This article will explain what: 

  • usually occurs at the end of a lease; 
  • options that you may have; and 
  • obligations you should carry out. 

Leaving the Premises

Make Good

At the end of your lease term, you will generally need to return the premises to the landlord in the condition it was at the start of your lease and in a clean and tidy state. You will most likely need to carry out ‘make good’ obligations. The scope of these obligations can vary depending on what your landlord specifies under your lease. However, in general, this involves:

  • removing any fitout you have installed;
  • repairing any damage;
  • redecorating, including repainting any internal walls and replacing carpets or floorboards; and
  • bringing the premises back to the same state it was in at the start of the lease.

Make good obligations may also require you to return the premises to the state of a ‘bare shell’. This means a property that has completed construction and has basic building services, but will have an unfurnished interior and lack things like lighting or plumbing. However, many leases also contain a clause allowing the landlord to retain some of the fitout that you have installed at its discretion, meaning you will not be required to remove it. 

Some leases allow the landlord, at its discretion, to carry out make good on your behalf. In this case, you will need to pay the cost. Generally, it is more beneficial for you, the tenant, to carry out make good on your own as you may be able to find a more economical way of carrying out these works than the landlord. You will also have more control over the process and can make sure you are carrying out the work properly.

Time Constraints

Leases often include a specific time period in which the landlord expects you to carry out your make good obligations. This will usually be within the last month of the term. You should ensure that you do not try to carry out make good prior to any time constraints, as you will then be in breach of the lease.

If your premises is located in an office block or shopping centre where there are shared common areas (e.g. lifts), the landlord may also specify a certain block of time during which you are permitted to move furniture or parts of your fitout in and out of the building. 

If your lease is unclear on any time constraints that you have to make good the premises, you should clarify this with the landlord to ensure you do not breach your obligations under the lease. You should do this as soon as possible as a tenant before your lease expires so you can avoid any disputes in the future. 

How to End a Lease Factsheet

A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.

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Remaining on the Premises

Once the lease expires, you no longer have the right to occupy the premises as the tenant. However, the exception to this is if the landlord has consented to you holding over your lease. 

Holding Over

When you hold over your expired lease, your tenancy is converted to a monthly tenancy agreement. You should be aware that unless your lease specifically states otherwise, you will require the landlord’s consent to do this.

The terms of a monthly tenancy agreement can vary slightly, however in general:

  • either party may terminate the lease at any time with 1 month’s notice;
  • rent may increase by an agreed amount (usually the fixed rent review percentage) at the start of the holding over period; and
  • the rest of your obligations under the lease will carry over and remain effective during the monthly tenancy.

Occasionally, leases may require parties to give more than one month’s notice to terminate or may increase the rent by a higher percentage than what the rent had been reviewed by throughout the term. Generally, rent should not increase by more than your standard rent review.

Should I Return the Premises or Remain?

While most tenants will leave and return the premises, there are some reasons where you might wish to hold over the lease after it expires.

For example, you may wish to stay if:

  • your lease does not have an option term and you want to negotiate a new lease with the landlord;
  • you are looking for new premises elsewhere, but you have not yet found the right place or you are still negotiating and want to remain at the current premises for a little bit longer; or
  • you wish to continue operating your business without a long term commitment to any premises.

Even if you have good reasons for wanting to hold over the lease, you will still need your landlord’s consent before you can do so.

Return of Your Lease Security

Once you satisfy your lease obligations (including make good) and return the premises to the landlord, the final thing which should happen is that your landlord returns your lease security to you. This is usually in the form of either a cash bond or a bank guarantee.  

Many leases state specifically when the security must be returned by.

For example, a lease may require the landlord to return the lease security within one month of you satisfying your obligations under the lease.

The time period should not be too long. If there is no time period specified, then one should be included to ensure the landlord cannot hold onto your security indefinitely.

If you have a retail lease, the retail legislation specific to your state or territory may specify when the landlord must return your lease security by at the expiry of your lease.

Key Takeaways

As a tenant, there are some key obligations that you should remember to carry out when your lease expires. If you leave, you will need to return the premises to the state it was in at the start of the lease. You may have the option to stay on the premises if you wish to do so if the landlord consents to on a holding over basis. If you have questions on what happens at the expiry of your lease, please contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What does it mean to ‘make good’?

‘Make good’ obligations are requirements that the landlord imposes on you at the end of your lease term. This will usually mean you need to return the premises in the conditions they were in at the start of your lease, and in a clean and tidy state.

How can I continue staying on the premises as a tenant even after my lease has expired?

You can continue occupying the premises if your landlord consents to you holding over your lease.

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