Make good provisions may be inserted into a commercial lease contract imposing an obligation on the lessee (tenant) to undertake works at the termination of a lease. A tenant may view these provisions as unnecessarily strict and exploitative, but for the lessor (landlord) they are an attempt to ensure the property is returned to them in good condition. Make good disputes often arise at the end of a lease as the relationship between the tenant and landlord winds down. A thorough review and consideration of possible make good disputes at the outset may help to avoid a sour end to a commercial lease.
A common make good provision requires a tenant to reinstate the premises to the condition it was in at the beginning of the lease, but these obligations may vary and so the lease should be thoroughly examined so that a lessee is not in breach of their contract. It is crucial that the landlord maintain a comprehensive condition report of the premises. A condition report is the bible on which the landlord may rely to press for various items to be reinstated.
If there is a failure to reinstate the premises to a specific condition, the landlord may be entitled to recover from the tenant the sum of any reduction in the value of the property as a result of the failure (James v Hutton and J Cook & Sons Ltd [1949] 2 All ER 243).
In the case of a failure to carry out repair works, s 133A of the Conveyancing Act 1919 (NSW) provides a cap on the amount the landlord can recover from the tenant. If a tenant fails to reinstate the premises, the landlord cannot recover any more from a tenant for a breach of a repair obligation than any loss sustained to the value of the premises. This was affirmed in the case of Waterways Authority of NSW v Coal & Allied Operations Pty Ltd [2005] NSWSC 1285 at [22]. This ensures the landlord cannot exploit the tenant but balances the tension between the interests of the landlord as they are compensated for any loss to the value of the property which may impact their future income.
There are a huge variety of make good provisions that may be included in a commercial lease, aside from an obligation to reinstate the premises to a stated condition and an obligation to repair. It is therefore important to carefully read through a lease so you know your obligations and how to discharge them without any unwelcome surprises.
The Property Team at Carneys Legal can assist you with a termination of lease dispute and make good dispute. Book your free 30 minute phone consultation today.
