3 August 2021 | Reading time: 2 minutes
In the current leasing landscape, it is not uncommon for landlords to offer lease incentives to entice prospective tenants.
The claw’s jaws
An incentive in a lease can be structured in various ways, including:
Lease incentives are often accompanied by certain conditions which prescribe circumstances where the landlord may clawback all or part of the value of the incentive. A common condition is, for example, where the lease is terminated or assigned prior to the expiry date. The logic being that the incentive was offered on the basis that the tenant will occupy the premises and comply with the lease for the full lease term.
A flawed claw
There have been instances where the landlord’s ability to clawback an incentive was deemed a penalty (and therefore unenforceable) by the courts, on the basis that the clawback was excessive and unconscionable in comparison to the maximum loss suffered for the breach. The relevant considerations in how to apply this test were described in our previous article on the relevant Queensland Supreme Court case.
This issue was once again considered (albeit briefly) in the case of 148 Brunswick Street Pty Ltd v Strategix Training Group Pty Ltd  QDC 38. In this case the landlord granted the tenant:
Importantly, if the tenant exercised the right to terminate the lease early, the tenant was required to refund the value of the incentive provided.
Sharpening the clause
The judge acknowledged (in passing) the strength of the landlord’s case on this point, noting that:
It is important to be attentive and thorough when drafting lease incentive clauses. When offering an incentive, landlords should be aware that the full amount may not be properly recoverable on default or another event triggered by the tenant.
Whilst the Brunswick case was not a decision made on the merits, it is clear that there is no ‘one size fits all’ approach to structuring an incentive clawback. Landlords may be able to recover incentives if they are drafted carefully, as courts are open to interpreting such clauses as not being a penalty where they are in consideration or exchange for a further obligation or right.