“When the lease expires we just walk out and set up somewhere else, right?”
No, not necessarily! Depending on what you have done to your commercial premises during the lease there might be some tidy up to be done (eg painting the walls) and removal of signs. However, it is sometimes a lot more than this. For example, if a tenant did a big fitout during the lease, the Landlord might require the premises to be reinstated – that is, put back as it was before. This can be a nasty surprise to a tenant when they were focusing on other things, like where to go next and all the logistics of the move. Building costs are significant now and once that work is done, the surfaces have to be put back in good order too – so painting and plastering trades get involved too.
So who determines what state the premises were in at the start? The ADLS Deed of Lease provides for premises condition reports but these are actually seldom used – but for both parties, these reports can be critical later on, when there might be an argument over what state the premises were in at commencement. Even if this section of the Deed of Lease is not filled in, at a minimum each party should have a full set of photos showing the condition of the premises.
For a tenant, there are some ways around the obligation to reinstate, but generally, these need to be worked out at the start of the lease, not when you are hoping to exit the lease! At the start of a lease, a Landlord might be amenable to paying for some of the fitout and even the idea that some of it gets left when the lease ends. These points can be negotiated – but the focus at the start of the lease is, again, on other things such as getting the new signs, the logistics of moving in, arguing over the rent etc. A well organised tenant would also be thinking of what happens at the other end of the lease. It’s like the old adage for some people in business – think about how you are going to exit – it's just as important as doing well along the way.
At Godfreys Law we deal with a wide variety of commercial tenants and Landlords and from that, we have struck many different (and difficult!) situations over lease reinstatements. We can give you practical guidance on your rights and obligations; and when a tenant is negotiating a new lease, we can advise on different approaches to consider, to try to avoid expensive reinstatements further down the track.
