A key focus of party’s that are negotiating a lease is often the rent. The last thing on any party’s mind at the start of a 10 or even 20-year lease is not focussed on what their obligations will be at the end of the term.
We say, end of lease obligations should be an integral part of the negotiation of any lease.
For a local government, this allows ample consideration to be given to the state and potential future use of an asset and the tenant's role in that.
Considerations for the parties include:
- The condition of the asset at the end of the lease;
- Whether the asset should be removed following the end of the lease;
- The level of refurbishment required. For a long term lease this could be important mid-way through as well as at the end of the term;
- The cost of the required action and which party should be responsible for that.
Long term leases of what are essentially community assets also bring to light the importance of regular inspection programs. This allows any issue with the state of the asset to be identified and rectified so as to minimise any future damage. These rights need to be included within the terms of the lease.
Asset Protection Tips and Takeaways
- Consideration of the term of the lease and possible state of the asset at the end of the term;
- Whether upgrades and refurbishment will be required mid-way through the term or at the end of the term and which party is to bear the costs;
- Ensure the tenant has appropriate insurance coverage;
- Carry out regular inspections and make sure the lessor has these rights in the lease.
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