Make Good Clauses
A make good clause is the part of a commercial lease that says what condition the tenant must return the premises in at the end of the lease. We act for tenants and landlords on make good clauses across Australia, from drafting and negotiation through to end-of-lease disputes.
Make good is one of the largest end-of-lease costs and one of the most disputed clauses in any commercial lease. The single best move is to get the scope clear and fair before the lease is signed. Our commercial lease lawyers handle make good from drafting through to dispute resolution. The Victorian Small Business Commission outlines what tenants and landlords should expect when preparing for end of lease.
What “make good” actually means
Make good covers anything from a simple clean and tidy through to a full strip out back to bare shell. Common scopes:
- Broom clean - sweep, remove rubbish, hand back keys
- Paint and patch - repaint walls, patch holes, replace damaged tiles or carpet
- Remove tenant property - clear out desks, fittings, signage, anything not part of the building
- Reinstatement - return to the condition recorded in the schedule of condition or condition report at the start of the lease
- Strip out to base building - remove the tenant’s fit-out and any tenant improvements
- Bare shell - back to a fully clear shell with new ceiling tiles, lighting, floor finish, and HVAC where required
The wider the scope, the higher the cost. Strip out and bare shell can run into hundreds of thousands of dollars on a meaningful tenancy.
Why make good matters most before signing
Once the lease is signed, the make good scope is locked. The time to negotiate it is during the lease review, not when the keys are due back. Make good costs should also be considered alongside outgoings when assessing the total cost of occupancy.
Tenant moves we recommend before signing:
- Insist on a schedule of condition or photographic condition report attached to the lease
- Negotiate “fair wear and tear excepted”
- Cap the make good obligation at the condition at the start of the lease (not “as new” or “original”)
- Exclude items the tenant didn’t install (the previous tenant’s fit-out)
- Negotiate cash in lieu of physical make good as an option, especially if the landlord is likely to fit out for the next tenant anyway
- Confirm that essential safety measures and base building items are excluded from the tenant’s make good
For retail leases, the relevant Act often imposes additional rules. In Victoria, for example, make good obligations should generally be disclosed in the lessor disclosure statement, and undisclosed obligations may be unenforceable.
End-of-lease make good
Most make good disputes happen in the last few months of the lease. The pattern is the same:
- Landlord serves a make good demand or schedule of dilapidations
- Tenant disputes the scope, the standard, or the cost
- Negotiation, often through a quantity surveyor on each side
- Settlement, usually as a cash payment in lieu of the works
- If unresolved, the landlord calls on the bank guarantee and the parties end up at the relevant tribunal
We act on both sides of this. For tenants, the goal is usually to limit the scope and avoid the bank guarantee being called on. For landlords, the goal is recovery for actual loss, not a windfall.
See: Make Good Disputes
Cash in lieu of make good
Cash settlement is often the cleanest outcome. The tenant pays an agreed amount and walks away; the landlord uses the cash to fit out for the next tenant or take it as compensation. The number is usually negotiated based on:
- The actual cost of the works (with quotes)
- The likely benefit to the landlord (will the next tenant strip it out anyway?)
- The state of the premises and what’s actually broken
- Whether the bank guarantee is on foot
A quantity surveyor’s report is often used to anchor the negotiation.
What we do
For tenants
- Negotiate make good scope at lease review
- Advise on cash in lieu options
- Manage make good disputes at end of lease
- Brief quantity surveyors and prepare evidence
- Defend bank guarantee claims
- Negotiate deeds of surrender that release make good obligations (see lease termination)
For landlords
- Draft enforceable make good clauses
- Prepare schedules of dilapidations and end-of-lease demands
- Recover make good losses through negotiation, tribunal, or court
- Call on bank guarantees properly
- Advise on the line between recoverable make good and capital improvement (which generally isn’t recoverable)
Frequently asked questions
What does “make good” mean in a commercial lease?
It means the work the tenant must do at the end of the lease to return the premises in the agreed condition. The scope is set by the lease and can range from a clean and tidy through to a full strip out.
What is “fair wear and tear”?
Damage that comes from normal use over the term of the lease. The tenant generally isn’t required to fix fair wear and tear, but the line between fair wear and tear and damage is often disputed. Negotiating it into the lease helps.
Do I have to remove the fit-out?
It depends on the lease. If the make good clause requires removal, yes. If the fit-out was installed by a previous tenant and you took the lease “as is”, we negotiate to exclude it.
Can I pay cash instead of doing the work?
Often yes, by agreement. Cash in lieu is one of the most common make good outcomes. The amount is negotiated, usually with input from a quantity surveyor.
What is a schedule of condition?
A document attached to the lease that records the state of the premises at the start of the lease, usually with photos. It’s the benchmark for any “reinstatement” obligation. We strongly recommend tenants insist on one.
Can the landlord call on my bank guarantee for make good?
Generally yes, if the lease allows it and the tenant hasn’t done the make good. But the call must be proportionate to the loss, and the landlord can be challenged if the call is excessive or premature.
What happens if I just hand the keys back without doing make good?
The landlord can do the work and recover the cost from you (and from any guarantor or bank guarantee). You’ll usually pay more than if you’d done it yourself.
How much does make good legal advice cost?
Fixed fee on negotiation and drafting. Disputes scoped in stages. Send us the lease and the situation and we’ll come back with a quote within one business day.
Talk to a make good lawyer
The cheapest make good is the one negotiated before signing. The next cheapest is the one settled early at the end of the lease. We help with both.