What to do when ending a commercial lease

Posted on Posted in Commercial Property, Commercial Real Estate, Consumer Price Index, Leasing, Office

When vacating a commercial property, there are a number of things that must be done before you can hand back the keys to the Landlord. Most of what is required should be documented within your lease, however you must ensure that you read this carefully as the information can be hard to find.

So what should you be looking for in your lease when preparing to vacate your tenancy? The terms to look out for are: ‘redecoration’, ‘yield up’, ‘repairs and maintenance’, ‘make good’ and ‘notices’. These are the terms that will outline what your requirements are upon vacating the property.

It’s important that you follow the correct procedure when vacating, as late notices and make good works can have you paying rent well after you have left the property.

You must provide the Landlord with notice to vacate, and it must be within the minimum notice period mentioned in the lease. This is generally one month but confirm this in your lease. If you are within a holdover period there is a chance that your notice period could be longer – sometimes three months. If you are a day late in giving notice then your Landlord has a right to charge you rent for that day.

Unless you have negotiated out of it, you will be required to make good the property.

There are a number of things you must do before handing the keys back to the Landlord

To make good is essentially to return it to the state it was in when you took on the lease, irrespective of any improvements you may have made to the property.

Ensure your lease is clear on what is involved in the make good. It should exclude repairs due to fair wear and tear (for example, slight scuff marks on a wall) but patch and repair where you have removed items (for example, signage attached to the wall). Make good clauses vary, and some will include a redecoration clause which might require you to repaint the entire property, replace all carpets and sometimes even install new blinds! You should agree a ‘scope of works’ for the make good with the Landlord and ensure it is inline with the requirements within the lease as they can be extremely costly to a business. It is worth having a professional review your lease and advise on your make good. It is possible to negotiate a make good payout figure with the Landlord, whereby you leave the property ‘as is’ or ‘as agreed’ and provide the Landlord with an agreed amount for them to undertake any make good works as they wish. Any make good payout should be documented by way of a Release Document prepared by a solicitor.

You will need to pay your rent as usual, and even throughout any make good works, whether or not you are in occupation of the property. This means if you are still completing the make good after your lease has expired and you’ve provided notice, or you have left items within the premises the Landlord can charge you rent.

You will most likely have provided a security deposit to the Landlord when you initially signed the lease, and the Landlord can use this for any unpaid rent or if they believe that make good works have not been completed satisfactorily. This is why it is important to document the scope of works for the make good and complete them within the timeframe of when you have paid rent up to. If you feel that a Landlord is unreasonably not releasing the security deposit, you should make contact with the Victorian Small Business Commissioner who may be able to assist.

When the make good has been completed and all stock and items removed, you can then return the keys to the Landlord and ask for written acknowledgement that you have returned the property to them and that the make good is completed. As the Landlord is the holder of the security deposit, ask for it to be returned to you (or deposited into your account) that same day.