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Renew the lease term, but don’t renew the incentive!

9 February 2012

 

Introduction

Can lease incentives be beneficial for both landlord and tenant?  Of course, however did one party intend for the incentive to be repeated upon renewal of the lease? 

Recently a decision of the NSW Court of Appeal showed the need for careful attention to drafting leases.

Facts

The landlord afforded a money contribution to the tenant at commencement of the lease.  The lease included an option to renew, which was exercised by the tenant correctly.

The lease also included an obligation by the tenant to update its fitout every five years.

The lease term coincided with the five year term.  The renewal clause was not unusual, except that it failed to remove the clause providing to the tenant the money contribution by the landlord toward the tenant’s fitout.

What do I need to be careful about?

The decision shows careful need in drafting leases, so as not to prepare an ‘off the shelf’ lease without proper consideration of the terms agreed between the parties. 

It is not unheard of for a lease to include terms in the initial term, which because of poor drafting, have been included in the renewed term to the detriment of one party.

Lease drafting can be simple, but more often poor drafting skills have been the cause of disputes.  Paying close attention to the expectations of each party and taking the time to draft those expectations into the terms is more than simply filling in the blanks.

 

Download the decision HERE.