What is a make good provision and how to avoid landlord disputes…

July 17, 2019 | Commercial Real Estate

A make good provision is a clause in a commercial lease that requires a tenant to return a property to its original condition before handing back the keys.

‘Make good’ obligations can range from repairing any damage caused while you occupied the property, to having to remove (or re-instate) all partitions, fixtures, joinery, installations, flooring and ceiling finishes. As part of the make good, tenants will also be required to remove their property from the space and leave the area clean and tidy. 

The problem when it comes to commercial make goods?

There are a few problems that can arise when it comes to the commercial make good provision.

Firstly, ‘make goods’ are often overlooked during lease negotiations because other issues, such as commercial terms and handover date, take priority. When this happens, a tenant may not understand the extent of their obligations until the end of their leasing agreement. By then it’s too late because you’ve agreed on the provision as part of the lease.

‘Make good’ clauses can also be quite vague or ambiguous, which means interpretation can go different ways (usually in favour of the Landlord). This can lead to landlord-tenant disputes, which can be expensive and lengthy.

Likewise, tenants often get caught up in designing a trendy new office for themselves and forget their obligations around the space as it was before they moved in. And (understandably) the expense of making good be quite a shock if not factored in beforehand. Expect to pay between $150-$250 per sqm.

How to make good

There are two ways to ‘make good’ at the end of your lease:

  1. Physically ‘making good’ – that is, carrying out all the works yourself
  2. Cash settlement – negotiating a payment to the Landlord instead of a ‘making good.’

At Tenant CS, we generally advise our clients to carry out the ‘make good’ themselves to ensure that their money is put to good use. Carrying out the works yourself could save you up to 50% when compared to Landlord-make-goods because you have more control over the project and providers. 

What’s more, the problem with paying a cash settlement to the Landlord is that the works may never actually be completed once you move out. In this case, the property is rented out in the state in which you left it, and the Landlord pockets your cash.

Image of a person working on building plans | Make Good Clause Article

How to avoid make good provision disputes

Prepare a dilapidation report

A great way to avoid Landlord-tenant conflicts when it comes to ‘making good,’ is to prepare a dilapidation (condition) report before moving in. When it comes to the end of your lease, you’ll then be able to request a final report to compare to the initial report, which will help quantify your ‘make good’ liability.

Unfortunately, some tenants fail to prepare a condition report at the start of their lease. And this means that the Landlord has nothing to compare when enforcing your ‘make good’ obligations.

Request a scope of works from your Landlord

Before moving into your new space, agree on a ‘scope of works’ with your Landlord. And ensure that it is appropriately documented in the lease. If you settle on concrete terms before you move in/fit out your space, then there should be no disagreements when it comes to making good at the end of your lease.

Stay on top of general wear and tear

A dilapidation report will make you aware of any existing damage to your space. Try to repair any further damages that you cause as they happen. That way, when it is time to relocate, you’ll only have your agreed scope of works to worry about.  

Give yourself time

When you’re nearing the end of your lease, request at least three quotes from different make good providers. Make sure that they price the full scope. You should also ask for their track history of completing commercial make goods on time and within budget.

Be sure to: 

  • Consider exclusions 
  • Give your preferred provider at least a week to prepare for the job before starting works
  • Monitor the project closely to make sure that project milestones are completed within the specified timeframe. (If the works are not finished in time, you may be required to pay extra rent.) 

Think about what your business really needs

Separate the essentials from the nice-to-haves. Fit-out works may be required to ensure your new space works for your people. Trendy office design is commonly associated with staff productivity and happiness. But keep in mind that what goes up must come down. 

Image of an office at the end of their lease | Make Good Provision Article

Seek the help of a tenant representative when negotiating the make good clause

‘Make goods’ can be costly and often breed tenant-landlord conflicts. So, it pays to have a professional tenant representative negotiate the make good provision on your behalf and review other contract terms so that you’re not caught out at the end of your lease.

The Tenant CS team are experienced negotiators. We’re familiar with the problems that can arise with commercial make good provisions, leasing documentation and terminology. We will make recommendations that increase your savings and reduce your risk. Contact us today!

Read more about why it pays to have a tenant advisor on your side.

Want more information about what to look for when it comes to negotiating your lease? Read our Commercial Leasing Agreement Checklist before signing on the dotted line.

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The Author

Tim is the Managing Director of Tenant CS and is a member of the Tenant CS tenant representation services team based in Sydney.

With a real estate career spanning nearly 30 years, Tim is an expert in lease exit strategies, negotiations, aligning property with business requirements, navigating approval processes and aligning senior executives with corporate strategy.

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