Under common law, there is an obligation on the tenant to put the premises into the same condition it was in at the beginning of the lease. However, you can include make good obligation clauses so that the tenant undertakes more work than they would under common law.

Why should I include make good clauses?

Make good clauses allow you and the tenant more flexibility to negotiate what needs to be done at the end of the lease. Don’t just rely on your remedies under common law if a tenant does not fulfil their obligations. Putting a make good obligation in contract means that you have contractual remedies as you can also include in the lease what happens if the tenant does breach the make good obligation.

Under common law (as opposed to the contractual obligations), if you don’t set the premises to the state it was in originally, you will be liable to pay damages to the landlord. This would probably be the amount of fair and reasonable costs to put the premises in the state that it should have been left in.

How should I include them?

You want your make good clauses to be as possible. Many disputes arise when the make good provisions are not clear as to what the tenant is required to do to fulfil their obligations. When drafting the lease and the make good provisions, make sure your lawyer understands what you want and that they draft them. It is easy in negotiating with the tenant to focus on the beginning of the lease such as the rent and term of the lease,

Instead of writing a general clause which requires the tenant to leave the premises in a decent condition, clean and tidy, you should consider more specific clauses that deal with different items and what needs to be done.

Alternatives or additional provisions

A cash settlement is an alternative to the tenant carrying out the work required to put the premises in the proper condition. This is beneficial in situations where the tenant may not have time to complete the necessary work. Conveniently for you, a cash settlement may mean you can access and relet the premises to a new tenant sooner.

A cash settlement provision doesn’t necessarily have to replace a make good provision. If you are thinking about adding a cash settlement clause, you could do this in addition to the make good obligations. This means that if you and the tenant agree not to do a cash settlement, the tenant will still need to fulfil their make good obligations and carry out the work.

A cash settlement provision in the lease also means that if there is any dispute about the cash settlement, you can rely on the dispute resolution clauses in the lease. One way to avoid disputes is to make sure the cash settlement provisions are as clear as possible; that they account for the various aspects of the premises including fitouts.

Conclusion

It is advisable to include make good obligations in the lease as it creates a higher standard to which the tenant must comply with at the end of their lease. This is best done when the clauses are written clearly so that you and the tenant understand what needs to be done to the premises to leave it in the proper condition. Regardless of whether you choose make good or cash settlement provisions (or both), make sure they are drafted clearly to avoid confusion and dispute.

Lachlan McKnight

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