Insights

The end of your office lease: What you need to know

When the end of a commercial lease is approaching, it is important to go back to the start. Aegis Property Group Director Mitch Connell says the end of a lease period is an important phase for tenants to prepare the property to the agreed state. “You’ve got to know your lease document,” he says. “When is your bank guarantee or security going to be returning? What is your make good? What do you have to do with your fitout?”

Understanding the end-of-lease obligations is essential for several reasons. Importantly, a failure to meet the obligations can lead to significant legal and financial consequences.  Additionally, tenants could face unexpected costs if they haven’t adequately planned for the make-good process, leading to last-minute expenses. Properly addressing the end-of-lease obligations helps maintain good business relationships and ensures ongoing efficiency.

What to do before the office lease ends

Before the lease ends, all parties should review the current terms and conditions. The lease agreement is the foundation for the tenant and lessor’s responsibilities throughout, and at the end of the tenancy.

There is a legal process should the tenant wish to stay on in the property under an option, or a new lease agreement. The owner does not have to grant an extension under an option but must give notice within 10 days of the request. Tenants can object, but this involves an application to court, incurring cost and stress.

End-of-lease obligations can lead to legal disputes between tenants and landlords, particularly if there are disagreements over the condition of the property or the extent of the tenant’s responsibilities. If a tenant fails to carry out the required work or address dilapidations, the owner may take legal action to recover the costs of the repairs or restoration. This could result in significant financial liabilities for the tenant, including legal fees. It helps both parties to maintain proper records of the condition of the property, as well as inspections and open communication.

How to prepare the property for the end of the lease

The basic requirement is to ensure the property is in a condition that could be re-tenanted. Under the Queensland Property Law Act, commercial leases of less than three years require at least the repair of any damage. Further, tenants must make sure the property is: “Good and tenantable repair, having regard to their condition at the commencement of the lease, damage from fire, flood, lightning, storm and tempest, and reasonable wear and tear excepted”.

Two of the most common clauses you should pay close attention to are the make good and repair and maintenance clauses. The make good clause outlines any requirements for the tenant to restore the property to a certain condition. This should be set out in the agreement, and can range from a ‘cold shell’ in which the entire fit out is removed, to the condition it was in at the start of the lease, minus reasonable wear and tear. Make goods can involve removing any renovations or fit out changes made during the lease term, repainting walls, or even re-carpeting floors.

Likewise, under a repair and maintenance clause, tenants should be aware of their responsibility for upkeep throughout the lease term and whether rectification works are required at its end. Failing to meet these requirements can result in the owner or property managers carrying out the work at the tenant’s expense, sometimes at a higher cost.

When it is time to exit the property

A property inspection is among the final steps at the end of a commercial lease. This can help to identify any issues that need to be addressed before the exit. Check there is no structural damage to the property, floors or leaks, that all repairs and maintenance have been carried out and recorded, that any improvements were approved or removed, and that the property is clean and well presented.

Engaging professionals such as a property manager or lawyer can also confirm that you have taken all the necessary steps for a successful exit. Lawyers can help to review the lease agreement and clarify any ambiguous terms and requirements, as well as potentially negotiating with the owner if there are disputes or if the make good requirements are unclear.

When returning the property, the final steps are to conduct a final walkthrough to confirm that all obligations have been met, hand over the keys and access cards, and ensure all the correct paperwork is in place.

End of lease obligations

As an office lease comes to an end, it is important legally and financially to make sure all the conditions are met. Key steps include reviewing your lease terms to fully understand any responsibilities, conducting a thorough property inspection to identify any necessary repairs or make good tasks, and maintaining clear communication to avoid potential disputes. Professional advice from a property manager or lawyer is also important to ensure compliance.

Need advice on managing your end-of-lease obligation? Contact Aegis Property Group. Our team of experienced professionals can help to achieve a successful lease exit. Contact us now.