Industrial Property, Leasing, News, Sustainability, Warehouses

Cost to environment of make good and refurbishing lease clauses

industrial make good

TMX Transform flags that through industrial make good activities, Australia generates 30,000 tonnes of commercial furniture waste, with 95 per cent of that ending up in landfill.  The company’s Sophie Marshall – Sustainability Lead, and Stef Frawley – Director Portfolio Management, explain to MHD the current challenges in this space and what landlords can do to help.

Central to all business operations, ESG is no passing trend, and is becoming increasingly important to the lease structure of industrial properties, especially when it comes to make good clauses.

Make good clauses require tenants to return a leased space to its original condition at the end of the lease term, including the removal of any fit outs.

While this is beneficial to the landlord and incoming tenants, it can pose significant costs to the environment with the process generating substantial waste and a very short lifecycle for often good quality fit outs.

“Consideration of lifecycles across industrial assets presents a great opportunity for industry collaboration to divert reusable assets from landfill and make a meaningful reduction to landfill statistics,” says Sophie Marshall, TMX Transform’s Sustainability Lead.

From the outset of building design, recycling and reuse should be incorporated into the plan, to minimise the amount of waste going to landfill. In Victoria alone, there are more than 135 charities and businesses available to help in the recycling process.

“During lease negotiations, it is important for all parties to consider softening make good clauses surrounding the removal of office fit outs,” says Stefanie Frawley, TMX Transform’s Director Portfolio Management. “This is something we help our clients with during the lease negotiation process, ensuring a more sustainable option is available for both the landlord and the occupier. We have been able to negotiate reductions as high as 70 per cent on the overall contract by being part of the process.”

To mitigate the severity of the impact on the environment, landlords should consider lessening the terms of the make good. Rather than strictly stipulating the removal of additional fit outs, landlords could provide sustainable alternatives for tenants to explore, such as recycling companies, energy-efficient upgrades, and responsible disposal practices, when negotiating and executing industrial property leases.

By Sophie Marshall and Stefanie Frawley.

For more information on TMX Transform, click here.

References:

“Australia generates 30,000 tonnes of commercial furniture waste, with 95 per cent of that ending up in landfill”

“In Victoria alone, there are more than 135 charities and businesses available to help in the recycling process.”

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