Makegoods.com.au is here to answer all the questions you have about what to do with your office fit-out at the end of your commercial lease.
It’s a story we’ve all heard too often… a tenant comes to the end of their commercial lease in Sydney, only to find that they’re trapped in a confusing, demanding makegood clause that results in big financial losses. There’s no way out, for if they elect to strip out, they’ll be considerably out of pocket. And if they settle with their landlord, it’s also going to cost them.
At Makegoods.com.au, we’re experts in navigating the end of a commercial lease. In this process, or before signing or ending a commercial lease, our clients often ask us, ‘What is the landlord’s preference? Do they want a settlement and leave the fit-out as is, or would they prefer we strip everything out and return it to its original condition?’. The answer, unfortunately, isn’t a simple one.
That’s because every landlord is different, and each office fit-out varies.
The argument for keeping an existing office fit-out
Businesses tend to spend a lot of money on a functional, stylish office fit-out. Clearly, a better Sydney office fit-out leads to higher levels of productivity, happier and healthier employees, and higher regard within the specific industry. Research has shown the link between a quality fit-out and employee wellbeing, time and time again.
General consensus places the average cost of an office fit-out around $800 to $1200 per square metre. However, excellent office design does not need to cost an arm and a leg.
There are plenty of firms available that will design and install a fit-out affordably while ensuring that your workspace is optimised for productivity. In fact, affordable, dynamic design can end up making it more likely that your landlord will be happy to retain the current layout, instead of forcing your hand and demanding a strip-out.
This, however, is where landlords can demand a cash payment in exchange for no strip-out being required. Of course, it will depend on what was stipulated in your original makegood clause, but landlords can inflict heavy fees on tenants. This is where tenants often see the make good clause simply as a cash grab… and sometimes, it can appear to be that way!
What are the other benefits?
Retaining an existing strip-out will obviously save the tenant and the landlord time. A strip-out may last weeks, depending on the size of the office space. And that may well be weeks where the landlord cannot rent out the office space to a new tenant, potentially sacrificing income on their part.
There are also other headaches involved; a strip-out will require a professional team, which will come with all manner of logistics and risk factors. Tools, machinery, and vehicles will need access, and on an active building site, there is always risk present, to whoever is still inhabiting the space or working on the strip-out. No landlord wants an accident to occur on their premises!
Factor in noise, issues with waste, and any other problem that may arise throughout the project, and it’s pretty clear that a strip-out is a sizable, time-consuming operation. For those reasons, it makes a lot of sense to retain the existing office layout, rather than demand the tenant remove it completely.
Of course, a compromise may be reached whereby the space is altered or only part of the office is returned to its original condition, but these sorts of agreements are best eked out with the help of a third party, like Makegoods.com.au.
The argument for stripping out
Whether your landlord is requesting that you remove your fit-out entirely or just a small part of it, there can be benefits to this course of action, for the tenant. Typically, the tenant will only have to cover the costs of the strip-out, and won’t bear the brunt of any penalty fees and so forth. The downside is that obviously, it’s still going to cost the tenant some hard-earned money.
If your business is in this position, it’s probable that you can offset some of these costs by reusing existing fit-out components in your new office space or selling them to another business. That goes for fixtures and fittings, as well as furnishings like desks and chairs. Reusing and recycling these materials is also a fantastic way to ensure a more sustainable strip-out and a better impact on the environment.
Think about your Sydney office fit-out before your next lease
The nature of an office fit-out can influence what happens at the end of your commercial lease. Even though that may be in ten or fifteen years, fitting your office out with a functional, simple, and flexible space will mean it’s much more likely another business can make use of the office as it is.
It will pay to communicate with your landlord throughout the design and construction process. If you are able to reach an agreement about a fit-out that works well for your business but also means your landlord is happy to keep it, that can be a great result for all involved.
These days, businesses are opting for offices that maximise natural elements such as light and airflow, as well as dynamic functionality. Essentially, that means an office that is adaptable and suitable for a range of different working styles. Whether that’s group work, quiet working, hotdesking, or something else, a dynamic office means a space suitable for a wide range of operations… and ideally for the next tenant!
Consulting with a Sydney office design company is a must before you begin your new fit-out. They’ll be able to impart knowledge and ensure you’re getting the most appropriate workspace for your organisation.
COVID has changed attitudes
Businesses are less inclined to pay for fit-outs since the pandemic hit, thanks to lower revenue and lost funds through a decline in revenue and empty workspace. Therefore, landlords are now taking into consideration the fact that an existing fit-out is likely to make their space more attractive to prospective tenants. This can work in favour of the exiting tenants, so long as they have an open and ongoing dialogue with their landlord. This is where a tenant advisory can work wonders.
Makegoods.com.au is here to help
When it comes to navigating your make good obligation, you deserve to have the experts in your corner. Our advisors have years of experience in the world of commercial real estate and are ready to ensure the best outcome for you and your business.
Get in touch with Makegoods.com.au here.
