Defit Cost vs Holdover Rent Sydney What the Numbers Actually Show

For a $1.5 million per year Sydney CBD office lease, every single day of holdover costs $6,164 in rent alone. That is before outgoings. Before penalty clauses. Before the bank guarantee exposure your finance team has been quietly ignoring.

The question most organisations ask is whether a professional defit firm is worth the fee. That is the wrong question. The right question is: what does each day of delay actually cost, and how does that compare to the fee?

This article breaks down the holdover rent mechanism, shows the daily cost calculation for three Sydney commercial lease tiers, runs three financial scenarios head to head, and explains what it takes to brief a defit firm for maximum speed. The numbers tell the story clearly.

How Holdover Rent Works in a Commercial Lease

When a commercial lease expires and the tenant remains in occupation, or has not completed their make-good obligations, holdover provisions in the lease activate. In most Australian commercial leases, this converts the tenancy to a month-to-month arrangement at 150% of the passing base rent.

Landlords enforce it in a specific sequence. First, a written notice is issued confirming the holdover rate. Then direct billing commences at the holdover rate. If the tenant fails to respond or vacate, the bank guarantee can be drawn. Each step happens faster than most tenants expect.

Here is the part that catches organisations off guard: holdover is not only triggered by physical occupation. Failure to complete make-good obligations to the landlord’s satisfaction can trigger holdover provisions even after the keys have been handed back. You can be out of the space and still accruing holdover costs if the strip-out was incomplete, the finishes were not restored, or the landlord’s inspection found defects.

And 150% of base rent understates the real exposure. Outgoings continue to accrue during holdover at the same rate they did during the lease. The combined daily cost of rent at 150% plus outgoings at 100% is the number that belongs on the CFO’s risk register, not just the headline holdover rate.

Calculating Your Daily Holdover Exposure

The formula is straightforward. You need two numbers from your lease: base rent and annual outgoings.

Annual outgoings in Sydney commercial leases typically run 25% to 35% of base rent for office buildings. For CBD properties, 30% is a reasonable working figure if you need to run a quick estimate before pulling the lease documents.

Here is what that formula produces for three common Sydney office lease tiers:

Your outgoings figure appears in your lease’s schedule, typically labelled as estimated outgoings or recoverable outgoings. If the lease is current, the most recent outgoings reconciliation statement from your landlord will have the actual figure.

Retail leases carry a different risk profile again. A Sydney CBD or Westfield-style retail lease involves trading hour obligations, centre management coordination, and in peak trading periods such as Christmas, holdover exposure that cannot simply be absorbed by management. The daily cost is the same formula, but the timing risk is significantly higher.

Build this into a simple spreadsheet: your daily holdover cost multiplied by the number of days your defit runs over schedule. That is the risk number. Compare it to the difference in defit contractor fees. The maths is not complicated.

Three Scenarios: What Each Option Actually Costs

To make this concrete, the following scenarios use a $1M per year Sydney CBD office lease with 30% outgoings — a daily holdover cost of $5,342. The tenancy is a standard open-plan office fitout, approximately 500 square metres. Lease expiry is fixed.

Scenario 1: The professional firm quotes $55,000 for a 500m² standard office defit. Work runs 10 working days. Landlord inspection is passed first time. Bank guarantee is released within two weeks of completion. Total cost: $55,000.

Scenario 2: The internal facilities team manages the job to save money. They are capable but the defit is not their core work. Coordinating specialist subcontractors, managing building access, and handling scope queries takes 25 working days to complete — 15 working days over the lease expiry. At $5,342 per day for 15 days, holdover adds $80,130 on top of the $40,000 in direct costs. The bank guarantee remains at risk throughout the extended period. Total: $120,130.

Scenario 3: The cheapest contractor quote at $28,000. Work runs 18 working days. Landlord inspection fails — services not properly capped, base building finishes not restored to specification. Rectification is required. 12 additional days of holdover at $5,342 per day adds $64,104. Rectification and the landlord’s penalty claim add another $22,000. Total: $114,104 — more than double the original quote and significantly more than the professional firm.

Penalty Clauses and How Bank Guarantees Are Drawn

Most commercial leases define non-compliance in terms of make-good obligations. The common triggers are incomplete strip-out, damaged services, failure to restore base building finishes, and outstanding make-good items from the schedule of dilapidations. Any of these gives the landlord grounds to call on the bank guarantee.

The draw process works like this. The landlord issues a written notice to the tenant identifying the breach and the quantum of loss. A cure period is typically specified, though this is often short. If the breach is not remedied within that period, the landlord presents the bank guarantee to the issuing bank and demands payment. The bank pays the landlord directly. The bank then debits the tenant’s account or cash collateral. This can move quickly once it starts.

Bank guarantees in Sydney commercial leases are typically set at three to six months of gross rent. For a $1M/year lease, that is $250,000 to $500,000 sitting at risk until the landlord issues a formal release. That release only comes after a satisfactory final inspection.

How to Protect the Guarantee

• Document everything. Photograph each area of the tenancy before, during, and after the defit. This is your evidence if any element of the scope is disputed.
• Request a landlord pre-inspection before the final handover. Walk through the space with the property manager and get written confirmation of any items to address before the formal inspection date.
• Get written scope confirmation from your contractor before work starts. Any item not in writing is a scope gap that will surface at inspection.
• Retain all isolation certificates, waste disposal documentation, and subcontractor sign-offs. These are the documents a landlord’s building consultant will request.

There are limits on what a landlord can recover even where non-compliance is established. Claims are typically limited to the actual cost of rectification and proven financial loss, not uncapped penalties. For specific advice on what your lease allows, engage a commercial property solicitor rather than relying on interpretation from contractors or property managers.

How to Brief a Defit Firm for Maximum Speed

The fastest defits happen when the contractor arrives on day one with a complete picture of the site, the scope, and the access conditions. Every missing piece of information creates a pause. Pauses cost money at $5,342 per day.

What to Provide Before Work Starts

• Base building drawings: Shows the structure, services layout, and what is base building versus tenant fitout. Without these, contractors are guessing what stays and what goes.
• Back-to-base specification: The landlord’s definition of the required end state. This is usually attached to or referenced in the lease. Confirm the current version directly with the landlord’s representative, not just from your original lease copy.
• Access schedule: Building hours, goods lift booking windows, loading dock access, out-of-hours permit requirements. This drives the daily programme.
• Services as-built drawings: Showing existing electrical, mechanical, hydraulic, and fire system layouts. Undiscovered services are the number one cause of defit delays.
• Lease expiry date and any extension terms: The contractor needs to build a programme back from a fixed end date.

What Slows a Defit Down

Discovering unmapped services during strip-out is the most common delay. A hydraulic line behind a partition wall, a fire suppression branch that was not on the drawings, an electrical circuit that was not in the panel schedule. Any of these stops work while the scope is assessed and the resolution is agreed.

Access conflicts with building management add time when not resolved upfront. If the goods lift is booked by another tenant for the first three days of your defit, the programme shifts. Sort the access schedule before the contractor mobilises.

Pre-Commencement Site Visit

A professional defit contractor will want to do a site visit before providing a fixed price or committing to a programme. This is not an optional add-on. The visit identifies any scope issues, confirms access conditions, and allows the contractor to walk through the back-to-base specification against the actual tenancy. Skipping this step to save time at the start consistently costs more time at the end.

Fixed Price vs Time and Materials

For a clearly defined scope with complete documentation, a fixed-price contract is appropriate. You know the total cost exposure before work starts. For a scope with gaps (missing as-builts, unclear back-to-base specification, complex services), a time-and-materials arrangement may be more honest but requires careful daily cost management. In either case, get a programme in writing with milestones before the job starts.