How to make good at the end of a commercial lease and avoid landlord disputes (+ VIDEO)

February 2, 2018 | Commercial Real Estate

What is a make good?

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.

What’s the problem?

Image of architect designing plans | commercial make goods blog
There are a couple 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. And, 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 that they can be interpreted in different ways (usually in favour of the landlord). This can lead to landlord-tenant disputes, which can be expensive and lengthy.

How to make good

designs for commercial 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 money is put to good use. The problem with paying a cash settlement to the landlord is that works may never actually be done. In this case, the property is rented out in the state in which you left it.

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 can prepare a final report to compare to the initial report to 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.

Seek the help of a tenant representative

‘Make goods’ can be costly. So, it is worth having a professional tenant representative negotiate a commercial lease on your behalf and review the terms before you sign on the dotted line so 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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