In Short
- Understand make good obligations: Know your end-of-lease requirements, which may involve returning the premises to its original condition or redecorating.
- Clarify repair and maintenance duties: Ensure the lease clearly outlines who is responsible for repairs and maintenance to avoid disputes.
- Plan for lease renewal: Diarise key dates and follow the renewal process strictly to secure your right to extend the lease.
Tips for Businesses
Before signing a commercial lease, review the make good obligations, repair responsibilities, and renewal options carefully. Negotiate terms where possible and ensure clarity to minimise unexpected costs and disputes. Consulting with a legal professional can help you understand your obligations and protect your business interests.
Entering a commercial lease can be an exciting step for any business, but it also comes with its fair share of potential challenges. Understanding these issues in advance will help you avoid surprises during the lease term and manage your obligations effectively. This article discusses potential challenges for tenants regarding make good obligations, repair and maintenance responsibilities, and exercising options to renew the lease.
Make Good Obligations
Before signing a commercial lease, it is essential to understand your make good obligations at the end of the lease term. These obligations can vary depending on the type of premises and any fit-out works you have undertaken.
In most cases, you will need to return the premises to their original condition, allowing for fair wear and tear. If you have made significant fit-out changes, the landlord may require you to restore the space to a “bare shell.” This can involve:
- removing fixtures and fittings;
- reinstating walls or other alterations; and
- restoring altered services such as electrical systems, plumbing, and HVAC systems.
If a bare shell return is not necessary, you may still need to carry out redecoration, which could include:
- painting internal and external walls; and
- restoring floors (e.g. replacing carpets and refinishing hardwood floors).
Repair and Maintenance Responsibilities
Commercial leases often outline which party is responsible for repairs and maintenance. Generally, landlords handle structural repairs, while you are responsible for keeping the premises in good condition and managing non-structural repairs.
Lease terms can vary widely, so review them carefully. Pay special attention to:
- air conditioning systems: some leases require you to repair or even replace these systems at your own cost; and
- fire safety equipment: you may be responsible for maintaining or replacing fire safety systems as well.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Exercising Option to Renew
Many commercial leases include options for you to extend the lease term, providing flexibility and stability. However, you must be aware of the potential challenges involved:
- strict deadlines: you need to adhere to precise timelines for exercising the option to renew;
- specific requirements: if you fail to meet the lease conditions for renewal, you could lose the right to extend the lease; and
- state-specific laws: retail leasing laws in some states may affect how you exercise the option.
To avoid missing important deadlines, diarise key dates and consult with a legal professional to ensure you follow all requirements.
Key Takeaways
You should understand your make good obligations early to avoid unexpected costs at the end of your lease. Clarify repair and maintenance duties to prevent disputes and ensure smooth operations. Plan ahead for lease renewal by diarising key dates and strictly following the required procedures. This proactive approach will help protect your business interests throughout the lease term.
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Frequently Asked Questions
Yes, you can negotiate the scope of make good obligations. It is advisable to clarify and agree on these terms upfront to avoid unexpected costs when the lease ends.
If a dispute occurs, review the lease terms and consult with a legal professional. Resolving issues early can prevent further conflicts and minimise business disruptions.
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