‘Make Good’ Provisions In Leases In Queensland, Australia

Leases are issued over state land for explicit purposes, including leases for: pastoral purposes, grazing in more intensively farmed areas, commercial purposes, tourism complexes over Queensland islands, and housing projects.

Now when it comes to term leases, the issuance are for terms of 1 to 100 years. After the expiration of the leases at the end of the last day of the lease term, the leaseholder will immediately lose possession of the area. Any improvements or changes made on the land will become the property of the state unless there are certain provisions stated.

Of course, most of the landholders have the right to apply to renew their lease but it’ll only be applicable once 80% of the term of the former lease has gone.

According to the 1962 Land Act, tenure types issued under this law that have continued as term leases under the current legislation are pastoral holding in any form.

To Make Good, Or Not To Make Good?

When assigning a commercial lease, the incoming tenant, also known as the Assignee, will typically receive the property as is, and the landlord will not require the departing tenant, also known as the Assignor, to satisfy its make good obligations at the time of assignment.

Problems with assignments usually only arise as the expiry of the term nears closer. This is because the Assignee may not have considered its make good obligations until this point. It is usually the case that the Assignee has agreed to make good the premises to its original state and not the state in which it was received from the Assignor, but often this aspect can be missed in the commercial negotiations of the assignment.

Instead of accepting the terms of the make good provisions in their original state, the Assignee should seek legal advice to protect itself from inheriting any unnecessary costs. If you believe that the Assignor will not be able to meet a claim for compensation or the Assignor’s obligations will cease upon assignment, you should speak with a commercial lawyer about negotiating the make good provisions.

There are a number of ways this could be negotiated. Perhaps the Assignor could pay an estimate of the make good upon assignment, which could then be off set against any outstanding amount to effect the make good provision at the end of the Assignee’s lease. For this to be effective, photographs of the premises ought to be taken prior to assignment. Alternatively, an independent report should be prepared.

When it comes to make good obligations, the landlord would be wise to avoid becoming involved in a dispute between the Assignor and Assignee. The landlord usually retains rights to enforce make good against either party, depending on how the assignment arrangement is drafted, as well as whether or not the Assignor has been released. Often, the landlord may prefer to pursue the Assignee, particularly if the Assignor has become insolvent.

It is best practice to discuss these concerns with your leasing lawyer prior to either signing a new lease or taking an assignment of an existing one, and to establish each party’s respective make good liability.