Make good: what you owe the landlord at the end of the lease
Make good is your obligation to return the premises at the end of the lease in the condition the lease specifies. Depending on the wording that can mean stripping the tenancy back to bare base building, or simply returning it as it was on the day you moved in. It is the most frequently underestimated cost in an office lease, because it is agreed at the start of a term and paid years later.
- When it bites
- At expiry or early termination.
- Common standards
- Base building · as at commencement · agreed schedule.
- Best protection
- A dated photographic condition report annexed to the lease.
- Alternative
- A negotiated cash settlement in lieu of works.
- Accounting
- Usually recognised as a provision, not a year-five expense.
The three standards you will be offered
Base building. The tenancy goes back to bare shell — partitions, workstations, cabling, kitchens and any supplementary air-conditioning removed, ceilings and floor coverings reinstated to the landlord's standard. This is the most expensive outcome and the one most commonly written into A-grade leases.
As at commencement. You return the premises in the condition they were in when you took them, fair wear and tear excepted. If you inherited an existing fitout, this can mean leaving it in place — which is far cheaper than removing it.
An agreed schedule. The lease annexes a specific list of what must be removed and what may stay. This is the clearest of the three and the one worth pushing for, because it removes the argument entirely.
Why the condition report decides the argument
Almost every make good dispute is really a dispute about what the premises looked like on day one. A dated, photographic condition report annexed to the lease and signed by both parties settles it in advance.
Without one, you are arguing years later against a landlord's recollection, usually while you are also trying to get a bank guarantee released. Take the photographs before you move a single desk in.
Cash settlement instead of works
Landlords frequently prefer money to a stripped-out floor, particularly if the next tenant will refit anyway or the building is due for repositioning. A negotiated cash settlement caps your exposure, removes the programme risk of getting trades in before expiry, and avoids a holdover if the works run late.
Ask early. Six months before expiry you are negotiating; two weeks before expiry you are accepting a number.
Treating it as a provision, not a surprise
A make good obligation is a present obligation arising from a past event, so it is normally recognised as a provision and built up over the term rather than hitting the P&L in the final year. Get an estimate from a fitout contractor early in the lease rather than assuming the landlord's later number is right.
What to negotiate before you sign
Push for an agreed schedule rather than "base building". Annex a photographic condition report. Ask for anything you install with the landlord's consent and which improves the building — a new kitchen, upgraded lighting — to be excluded from removal. Ask for a cash-settlement option to be written in, and for a cap on the landlord's entitlement.
Common questions
What does make good mean in a lease?
How much does make good cost?
Can I pay the landlord instead of doing the works?
Do I have to remove a fitout that was already there?
What is a condition report and do I need one?
General information only. This guide explains how office leasing usually works in Australia. It is not legal, financial or tax advice, it does not take account of your circumstances, and lease terms and legislation change. Get advice on your own lease before you sign it.
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