Understanding the fit-out clawback provisions on your lease
Simon Fonteyn, Managing Director of Leasing Information Services, explained how fit-out clawback provisions in leases worked and what it means for retailers.
“A clawback provision is a standard term where a fit out contribution is provided by the lessor and under certain circumstances, such as default or repudiation of the lease, the lessor has the right to recover some of the fitout contribution.” Fonteyn said.
“A typical clause of a clawback provision provides the lessor with a % recovery of the fitout amount, based upon the number of years into the lease. So 80% in the second year,60% in the 3rd year etc. Typical examples where a claw back provision might apply are when a tenant assigns a lease or a tenant defaults on a lease or when a tenant surrenders a lease.”
“Claw Back Provisions are very common in most standard leases where fit out contributions are provided.”
Currently however, enforcing these provisions is a moot point as a High Court Decision where a claw back provision was deemed to be a penalty and unenforceable given there was not a pre-estimate of damage.
Fonteyn said that the High Court also found recently in another case that where the clawback provision was triggered by an event that was not a breach of lease, such as an assignment would definitely not trigger a claw back provision. Legal advice should always be sought on these issues.
Leasing Information Services is a company with a wide coverage of shopping centres, direct factory outlets, bulky goods and main retail strips in the country, providing data and critical decision support for retailers looking to make the most out of a leasing negotiation.
