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ARTICLE · 09 MAY 2023

Lease incentives: When is a claw back considered unenforceable?

Piper Alderman
Piper Alderman
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If the claw back right went further than necessary to protect the landlord's interests, it was considered unenforceable.

AustraliaReal Estate and Construction
Adam Rinaldi
Adam Rinaldi
Kara Pennisi
Kara Pennisi
Grace Hooper
Grace Hooper
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In the context of commercial leasing, consideration should be given to what would constitute a penalty versus a genuine pre-estimate of damage for the purposes of enabling a landlord to lawfully claw back a proportion of an incentive where a tenant is in breach of its leasing obligations.

Incentives are becoming more prominent in office leasing transactions with demand for office space continuing to soften following the pandemic which has pushed businesses to rapidly adopt new behaviours with respect to remote work. This has, in some jurisdictions in Australia, precipitated lower effective rents (and higher lease incentives for tenants in the form of rent reductions or fit-out contributions).

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