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Insights

A make good provision is a term that is included in most commercial leases. It is used to protect the lessor’s interests by imposing a positive obligation upon tenants to return the property to its pre-lease condition. Make good provisions are one of the most frequently disputed clauses when it is time for the lessee to vacate the premises at the conclusion of the lease term.

Why does this term give rise to disputes?

Enforcement of this term often creates disputes in circumstances where tenants are unwilling or unable to revert the property to its pre-lease state. Because of the lengthy timeframe that the lessee is granted a right of exclusive possession, the situation often arises where a tenant makes substantial alterations to the property. When it comes time to vacate, lessees are reluctant to incur additional cost to remove items or undertake rectification works. Lessor’s rights with respect to enforcing an obligation that the property be returned to its pre-lease condition will depend on the nature of the wording of the clause.

The wording of the clause and pre-condition reports

There are various types of make good provisions that may be suitable when preparing a lease. The least onerous of these is a term that requires the removal of the lessee’s detachable property only. This approach is not usually recommended as lessees will often undertake commercial fit out works involving the construction of fixtures such as flooring, lighting, or desks. These more permanent changes would not be captured by this type of clause, and the lessor may have no right to demand their removal from the premises.

A more comprehensive approach available to lessors is to arrange for a pre-condition report to be prepared and signed by the parties. Reliance on this report as a record of the pre-lease condition of the premises allows lessors to prepare make good provisions with a greater level of certainty that they will be enforced. The existence of an agreed upon pre-condition report will facilitate the imposition of more onerous make good provisions. For example, one approach would be to draft a clause where the wording requires that the lessee remove all property and return the property to the standard as evidenced by the condition report.

Assignment of lease

Another issue that lessors should be mindful of arises where a lessee assigns the lease to a third party. When a lease is assigned, the new tenant usually takes over the property in whatever condition it is provided to them by the original lessee. The incoming lessee also inherits the departing lessee’s obligations to make good the property, pursuant to the lease. To minimise the chance of a dispute occurring at the conclusion of the lease term, lessors are strongly advised that assignees should be clearly informed as to their obligations regarding the return of the property to its pre-lease condition.

Cash in lieu of make good

Due to the time, cost and frustration associated with enforcing make good obligations upon lessees, it is prudent to include a provision that allows lessors to demand a cash payment where lessees fail to fulfill their obligations to the requisite standard.

So, in summary…

Often due care is not taken when make good provisions are drafted. This is usually because at the time the lease is prepared, make good provisions do not occasion an immediate cost implication to the parties. At the conclusion of the lease however, significant costs may arise where the lessee fails to comply with lessor’s requests to revert the leased premises to their pre-lease conditions.

By taking the time to carefully draft their lease, lessors can ensure that the make good provision will be enforceable and their rights are protected. If you are a landlord looking to lease commercial property, don’t rush the drafting process. If you need any guidance, Kells’ experienced commercial property lawyers can advise on all matters relating to leasing to ensure your rights are protected.

This article was co-authored by Law Cadet Bill McLaughlin.

 

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