Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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Signing a commercial lease is a big step for any small business. Whether you’re opening your first shopfront, taking on a warehouse, or upgrading to a larger space, the lease doesn’t just set out rent and term length - it also sets out who is responsible for the premises, and what condition the premises must be in.
This is where the phrase state of repair becomes critical. It can determine how much you’ll need to spend before you move in, what you must maintain during the lease, and whether you’ll face a large (and sometimes unexpected) bill when the lease ends.
In this guide, we’ll break down what “state of repair” means in a commercial leasing context, what clauses to watch out for, and how you can protect your business before you sign.
What Does “State Of Repair” Mean In A Commercial Lease?
In a commercial lease, state of repair is essentially about the condition of the premises - and who is responsible for keeping (or putting) the premises in that condition.
In practice, it often comes up in three ways:
- At the start of the lease: what condition are you accepting the premises in, and are you required to do any repairs before you open?
- During the lease: what repairs and maintenance are you responsible for as the tenant (and what should the landlord handle)?
- At the end of the lease: what condition must you return the premises in, and are you required to “make good”?
Some leases require you to return the premises in the same condition as when you started (fair wear and tear excepted). Others go further, requiring you to hand back the premises in “good repair” - which can be a higher standard than what you received, especially if the premises were already worn or dated. The effect of this will depend on the wording of your lease and, in some cases, how it’s interpreted in your state or territory.
That’s why it’s important not to treat state of repair clauses as standard boilerplate. They can materially change the cost of occupying the premises.
Why “State Of Repair” Clauses Can Be Risky For Small Businesses
For many small businesses, the biggest risk is not understanding how broad “repair” obligations can be.
Depending on the drafting, a tenant’s obligations might include:
- general maintenance (eg replacing broken fixtures, maintaining doors/locks)
- rectifying damage (including damage caused by staff or customers)
- ongoing upkeep (eg repainting, replacing worn flooring)
- compliance-related works (for example, where the lease shifts responsibility for certain upgrades or certifications to the tenant)
- rectifying issues that existed before you moved in (if the lease wording is broad enough and you accepted the premises “as is”)
These obligations can become expensive quickly, particularly if you’re leasing an older building, taking over a tenancy with a lot of wear, or operating a business that naturally involves more foot traffic and “wear and tear” (hospitality, retail, gyms, medical clinics, childcare, etc.).
It also becomes risky when your lease includes a strong make good clause (more on that below). You might run your business successfully for years - then face a big exit cost when you try to move premises or negotiate a new site.
Common “State Of Repair” And Repair Clauses (And What They Really Mean)
Not every lease uses the same wording, but these are some common concepts that affect your state of repair obligations.
“As Is” Or “Accepts The Premises In Their Current Condition”
This type of wording generally means you are accepting the premises in the condition it is in at the start date.
On its own, that might sound fair. The issue is that it’s often paired with obligations to maintain the premises and keep them in good repair. If you accept the premises “as is” but then must keep them in good repair, you can end up responsible for rectifying pre-existing problems that were already there (or problems that were foreseeable based on the condition).
If you’re taking the premises “as is”, it’s a good idea to make sure the lease clearly records:
- what the premises include (fixtures, equipment, fit-out items)
- what you are not responsible for
- what repairs the landlord must complete before handover (if any)
“Keep The Premises In Good Repair And Condition”
This is one of the most common clauses - and one of the broadest.
“Good repair” can be interpreted as more than just fixing what you break. It may require you to keep the premises in a sound, functional condition, and prevent deterioration. Exactly what this means will depend on the lease wording and the circumstances.
In a practical sense, that could mean ongoing maintenance, replacing worn parts, repainting, and similar upkeep - even if the issue is simply age-related.
Fair Wear And Tear
Leases often say you are not responsible for “fair wear and tear”. This is helpful, but it’s not a free pass.
Fair wear and tear usually refers to natural deterioration from ordinary use over time (for example, light scuffing on floors or paint fading). It does not cover negligence, misuse, or preventable damage.
Where disputes arise is in the grey area: what’s “fair” and what isn’t? If the lease ends and the landlord says the premises are below the required state of repair, you may end up negotiating (or disputing) what falls within wear and tear.
Landlord Repairs Vs Tenant Repairs
A well-drafted lease should clearly allocate who fixes what. In many commercial leases:
- the landlord is responsible for structural elements (eg foundations, load-bearing walls, roof)
- the tenant is responsible for internal repairs and maintenance (eg internal walls, fit-out, fittings and fixtures)
However, you shouldn’t assume this will always be the case. Sometimes responsibility is shifted to the tenant more than expected, particularly where the tenant has a lot of control over the premises or where the landlord wants to minimise ongoing obligations.
If you’re unsure, this is exactly the type of issue that can be flagged in a Commercial Lease Review before you sign.
Make Good Clauses: How They Affect The State Of Repair At The End Of The Lease
A “make good” clause sets out what you must do when the lease ends. This is often where the state of repair becomes most expensive.
Make good obligations vary widely. They can include requirements to:
- remove your fit-out and signage
- repair any damage caused by removal
- repaint the premises (sometimes in a specified colour)
- replace flooring
- return the premises to base building condition
- return the premises to the condition shown in an entry condition report
Sometimes make good is simple and fair. Other times, it’s drafted so broadly that a tenant must deliver the premises in a better condition than when they received it. The outcome will depend on the drafting and (where relevant) the rules that apply in your state or territory.
Why Make Good Can Be A Hidden Cost
Make good can feel distant when you’re negotiating a lease, especially if you’re signing a 3–5 year term. But for small businesses, it can become a real barrier to relocating, downsizing, selling the business, or even winding up.
It can also affect your ability to assign the lease to a buyer if you sell your business, because make good obligations can remain with you unless properly dealt with in the assignment documents.
If you’re negotiating a lease extension or renewal, it can also be a good moment to reset or clarify the make good position - especially if the premises have changed over time.
How To Protect Your Business Before You Sign The Lease
When it comes to state of repair issues, the best protection is being proactive before you commit.
1. Do A Proper Inspection (And Don’t Rush It)
Try to inspect the premises at least twice - once during business hours and once at a different time if practical. If you can, bring someone with building experience (or arrange a professional inspection) for older sites.
Look for signs of issues that could later be treated as “repairs”, such as:
- water stains or evidence of leaks
- cracks in walls or ceilings
- non-functioning doors, locks, windows
- air conditioning or ventilation issues
- electrical problems (flickering lights, old switchboards)
- bathroom plumbing issues
If you identify problems, raise them before signing and push to have them fixed, or at least recorded and excluded from your responsibility.
2. Get A Condition Report And Attach It To The Lease
A condition report (or condition schedule) is one of the most practical ways to reduce disputes about state of repair.
Ideally, it should include:
- dated photographs
- notes about existing damage and wear
- a list of what is included in the premises (fixtures, equipment, inclusions)
Where possible, have it signed by both parties and annexed to the lease.
This can be especially important if you’re taking over an older tenancy or a space with a previous tenant’s fit-out.
3. Clarify Who Is Responsible For What (In Plain English)
Even if a lease has a repair clause, it should also spell out responsibility in a way that’s commercially workable.
For example, if the premises has air conditioning, ask:
- Who services it and how often?
- Who pays for repairs?
- Who pays for replacement if it fails completely?
These are the kinds of practical questions that matter during the lease - not just at the start and end.
4. Negotiate The Make Good Scope Early
If you’re going to negotiate make good, do it before you’ve agreed on the overall deal. Once rent, incentives, and term length are locked in, make good can become harder to adjust.
Depending on your situation, options might include:
- limiting make good to “repair damage caused by tenant” only
- confirming you don’t need to remove certain items
- capping reinstatement obligations (eg no requirement to replace flooring)
- linking end condition to the entry condition report
If you’re negotiating a longer lease or fit-out incentive, landlords may be more open to compromise - but it still needs to be documented properly.
5. Make Sure Your Lease Matches Your Actual Deal
One common issue is where a tenant agrees to certain repairs or incentives via email or heads of agreement, but the final lease doesn’t reflect what was agreed.
If you’re offered an incentive on the basis that the landlord will do certain works, ensure that promise is written into the lease (or documented in a binding way). Otherwise, you may have limited leverage after signing.
This is also why reviewing any agreement for lease, side deed, or incentive deed matters - not just the main lease document.
If your arrangement involves taking over an existing tenant’s lease or reworking terms mid-stream, you may also need a Deed of Assignment of Lease to properly manage responsibilities and handover.
What Other Legal Documents Might You Need Alongside Your Lease?
The lease is usually the centrepiece, but it’s rarely the only legal document that matters when you take premises.
Depending on how your business operates, you may also need:
- Terms for selling to customers: if you sell goods or services to the public, clear Terms of Trade can help manage payment terms, delivery issues, and limitation of liability (where appropriate).
- Website terms: if you take bookings, sell online, or run a customer portal, Website Terms and Conditions help set rules around use of your site and content.
- Privacy compliance: if you collect personal information (even something as simple as an online enquiry form), a Privacy Policy is a common starting point for compliance and customer transparency.
- Employment documents: if you’re hiring staff for the new location, having a properly drafted Employment Contract can reduce misunderstandings around duties, rosters, confidentiality, and termination.
These documents don’t replace your lease - but they help make sure your operations match your risk profile. When you’re signing up for rent and repair obligations, it’s worth tightening the rest of your legal foundation too.
Key Takeaways
- State of repair obligations can apply at the start, during, and at the end of a commercial lease - and they can significantly affect the true cost of a premises.
- Broad repair wording (like “keep in good repair”) can shift more responsibility to you than you might expect, especially if the premises is older or has pre-existing issues.
- Make good clauses often determine the end-of-lease state of repair standard, and can lead to major exit costs if they’re not negotiated or clearly documented.
- A condition report attached to the lease (with photos) can reduce disputes and help prove what the premises looked like when you moved in.
- Before signing, it’s worth clarifying who repairs what, what the landlord must fix before handover, and what you must return at the end of the term.
If you’d like help reviewing or negotiating your commercial lease (including state of repair and make good clauses), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
