Making good leased premises

It is usual for leases to stipulate that at the end of the lease, the tenant has to make good and restore the premises to its state and condition at the commencement of the lease, fair wear and tear excepted.

Consider a lease with 5 years initial term and 5 years option, and the option has been exercised. When an option is exercised, a new lease comes into place. Therefore, at the expiry of the option lease, the tenant has to make good the premises and restore the premises to its state and condition at the commencement of the option lease, not the original lease.

There may be a big difference between condition of the premises at commencement of the original lease and the condition of the premises at the commencement of the option lease!!

For tenants, take pictures of the premises at commencement, even at option commencement date.

For landlords, keep pictures and records of the condition of premises at commencement. When an option is exercised, inspect the premises. Include a lease condition to ensure that all damage is made good before commencement of the option period, the failure of which will either void the tenant's right to exercise the option, or becomes a serious breach allowing landlord to terminate. Or perhaps draft the make good clause clearly to stipulate the exact condition in which the premises must be restored to (eg bare concrete shell), rather than making references to commencement dates.

This issue must also be considered by purchasers of lease properties, and also incoming tenants taking an assignment of lease. Get it wrong, and someone will spend millions making good, perhaps at the expense of their lawyer!