Summary
- Ambiguous make good provisions are a leading source of commercial lease disputes, as courts interpret undefined terms from context rather than the parties’ intent, often producing outcomes neither party anticipated and litigation costs that exceed the cost of careful drafting.
- A general make good clause does not automatically require tenants to remove fit-out works; landlords must expressly include reinstatement as a written condition of consent to fit-out works, whilst tenants should review all consent conditions before commencing works.
- Fixtures installed by tenants become the landlord’s property by default at lease end unless the lease expressly provides otherwise, and all rights and obligations must be contained within the registered lease itself, as informal documents such as Heads of Agreement may not bind future owners.
- This article is a guide to make good provisions in commercial leases for landlords and tenants in Australia, explaining the key risks around undefined terms, fit-out removal, fixtures, and registered leases.
- LegalVision is a commercial law firm that specialises in advising clients on commercial leasing and property disputes.
Tips for Businesses
Define all key terms in make good clauses at the outset of the lease rather than relying on implied meanings. Landlords should record reinstatement requirements in writing when granting consent to fit-out works. Ensure all agreed rights and obligations are incorporated into the registered lease, as informal side documents may not bind future landlords or tenants.
Make good provisions govern a tenant’s obligations when exiting a commercial lease, but ambiguous drafting is one of the most common sources of disputes between landlords and tenants. Understanding how courts interpret these provisions and what both parties can do to protect their position is essential when negotiating or reviewing a commercial lease. This article examines the key risks around undefined terms, fit-out removal, fixtures, and registered leases.
The Risk of Undefined Terms
Words matter in commercial leases. If you leave a key term undefined, courts interpret it from context, which may not reflect the parties’ intent. This risk is real, not theoretical. A landlord may assume a make good clause requires full reinstatement, but without clear drafting, may have no recourse. Equally, a tenant may believe they must return the premises in good repair. However, poor drafting may expose them to unexpected reinstatement costs.
Ambiguity in commercial leases rarely resolves as either party expects, and litigation costs often exceed the cost of careful drafting.
Fit-Out Removal: Don’t Assume
A common dispute in make good clauses is whether a tenant must remove fit-out works at the end of the lease. Important considerations are:
- A general make good clause does not, by itself, require removal of tenant-installed fit-out.
- Landlords should require reinstatement as a condition of consent to fit-out works.
- Consent conditions should be recorded in writing when approval is granted.
- Tenants should review all consent conditions before starting fit-out works, as these govern end-of-term obligations.
By addressing these points upfront, both landlords and tenants can avoid uncertainty and potential disputes at lease end.
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Fixtures: Who Owns What?
The treatment of fixtures is another area where landlords and tenants frequently find themselves in dispute. Once a tenant installs fixtures, they become part of the premises and the landlord’s property at the end of the term. This is the default position at law, and it applies unless the lease provides otherwise.
Where a lease permits a tenant to remove fixtures, that is a right – not an obligation. Without an express requirement to remove them, a landlord cannot compel a tenant to take back what they have left behind. Conversely, a tenant who wishes to retain the right to remove fixtures should ensure the lease expressly preserves that right, as it will not be implied. Parties should also decide what happens to any fixtures left behind. The lease should clearly state whether they stay, go to the landlord, or are disposed of.
Registered Leases: Get It All in Writing
If a lease is registered, the registered document is the agreement. Rights in extra or informal documents, like a Lease Proposal or Heads of Agreement, may not apply to future owners. This can happen if the lease or freehold changes hands during the term. This is particularly important in commercial leasing, where assignments of leases and transfers of the landlord’s interest are common. Parties should ensure the registered lease includes their full agreement from the start. Relying on side deals may not bind future landlords or tenants.
This guide explores the various types of leasing disputes that may arise and how to resolve them.
Key Takeaways
When negotiating or reviewing make good provisions, keep the following in mind:
- Define key terms clearly to ensure clauses are given their intended meaning.
- A tenant will not be required to remove approved fit-out works unless the lease specifically requires it.
- Landlords should make reinstatement a condition of consent to fit-out works – not rely on a general make good clause.
- The treatment of fixtures should be addressed expressly, including what happens to any fixtures not removed at the end of the term.
- Ensure all rights and obligations are contained within the registered lease.
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Frequently Asked Questions
No, a general make good clause does not require fit-out removal. Landlords must expressly require reinstatement as a condition of consent to fit-out works, recorded in writing when approval is granted.
Fixtures become part of the premises and the landlord’s property by default. The lease should expressly state whether remaining fixtures stay, transfer to the landlord, or must be disposed of.
Rights in informal documents may not bind future owners if the lease or freehold changes hands. All rights and obligations must be contained within the registered lease itself to remain enforceable.
Define all key terms expressly at the outset. Courts interpret undefined terms from context, which may not reflect either party’s intent, and litigation costs typically exceed the cost of careful drafting.
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