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Are ‘make good’ provisions enforceable in commercial leases?

Commercial leases usually contain provisions requiring the tenant to leave the premises in a certain state at the end of the lease. These provisions are usually divided in to three groups:

  1. Obligations to hand back premises in good repair;
  2. Obligations to reinstate premises to the same condition as at the start of the lease; and
  3. Obligations to reinstate premises to a specified condition.

It is not difficult to imagine that disputes could arise from these provisions. For example, in some cases it is not possible to leave a premises in the precise condition as it was in at the start of a lease for a wide range of reasons.

The common law differentiates between repair works and the reinstatement of premises to some agreed condition.

However, in NSW under the Conveyancing Act, landlords are only able to recover an amount equal to the value of the property is diminished by the tenant.  If a building is going to be pulled down or have major structural changes, then the tenant is not liable for any damages.

Both tenants and landlords should be careful and diligent when negotiating make good provisions in a commercial lease to avoid conflicts arising at the end of the lease.  Parties can also vary the terms of the lease during the lease to better clarify obligations for repairs and reinstatement of premises.

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