Make Good Provisions : Avoiding The Pitfalls

In today’s market, maximising returns and reducing costs is a core component of a Landlord’s focus. Recently, this has seen Landlord’s becoming more assertive towards the make good provisions found within a Lease, and recovery of the costs associated with reinstatement of a property following a tenant’s departure.For tenants, this can be an expensive and unforeseen cost.
There are ways to handle the issue for tenants, the first and foremost being to ensure that when they enter into a lease, they have a clear understanding on what their liabilities will be on termination of their lease term. If they are moving into an existing building, a schedule of condition will act as a means of limiting any liability to the condition of the property on the day they take occupation. There are good and bad ways to have a schedule of condition drawn up. It has to be accurate and readily understandable to those who will pick it up and review it when the lease finally draws to an end.

In addition, there is a wealth of international case law associated with make good provisions and repairing obligations that underpins negotiations between a Landlord and Tenant in relation to make good / reinstatement provisions. This relates to a range of factors, from potential new / planned uses for a property through to what constitutes a ‘loss’ to the Landlord.

The area can be a minefield, if the issue is not handled strategically, and it is often reasonably simple to mitigate any loss through smart planning and forward thinking.

IBC have been providing advice and expert witness services on these issues to Landlords and Tenants for over 15 years and are one of only a few New Zealand based professional services firms with a track record in the area.