What is a ‘make good’?

July 17, 2019 | Commercial Real Estate

A ‘make good’ is a provision 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 of problems that can arise when it comes to commercial ‘make goods’.

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’ provisions 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) this can be quite a shock if it was not factored in before the end of the lease term.

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 by the Landlord 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 Article

How to avoid ‘make good’ 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 ‘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 the 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 and provide you with their track history of completing commercial makegoods 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. But, while a trendy office design may keep staff productive and happy in their workspace, keep in mind that what goes up must come down. 

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

Seek the help of a tenant representative

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

The team at Tenant CS are experienced negotiators, are familiar with leasing documentation and terminology, and can make recommendations that increase your savings and reduce your risk. Contact us today!

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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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