Make Good is a clause within a lease which outlines a tenant’s obligations in relation to the specific condition in which they must return the premises once the lease comes to an end.
There are varying degrees of make good that may range from simply leaving a space in a clean and tidy condition right up to fully removing all fit-out and returning the services (air-con, lighting etc) back to base building conditions.
It’s not uncommon for make good to become a point of contention in lease negotiations between landlords and tenants, meaning that it is imperative that there is clear understanding from both parties as to what the requirements are prior to leases being signed.
Depending upon the condition that the premises is handed over to the tenant when the lease commences (fitted/non-fitted etc), a landlord will typically propose one of the following make good obligations:
- Removal of tenant property only:
This is the most basic form of make good that is found in a Heads of Agreement. In essence, a clause like this will require the tenant to remove all its property that was not already in the fit out before occupation. This is included but not limited to, computers, computer arms, filing cabinets, any furniture brought in by the tenant etc.
Most Landlords will generally expect the tenancy is left in a clean and tidy state so it’s important to engage the correct people and ensure that this is all adhered to.
- Return to the condition which the business received it at the time of lease commencement:
This obligation extends the scope from the previous wording to include things like cleaning of the tenancy, washing of carpets, and the re-painting of the walls.
Essentially, the space needs to present as it did before tenant occupation in accordance with the condition report taken at the start of the lease, subject to fair wear and tear.
Clauses like this are most commonly used in spec fit outs or where the Landlord has delivered the tenant a fitout out of the incentive so the fit out is effectively owned by the Landlord. The landlord will often need to re-lease the tenancy as is for two or more terms after accounting for the initial fit out contribution.
- Returning the tenancy to base building standard:
This type of make good is often referred to as a “full make good” meaning it is the most comprehensive and expensive that a landlord will write into a Heads of Agreement.
It requires you to remove all fixtures and fittings, all furniture and return the space back to a warm shell standard, this will include the building’s base build carpet and ceiling tiles, repaint as well as return the above ceiling serv ices back to the base build condition (above ceiling services are aircon and fire systems).
This is typically the most expensive type of make good, it is best to engage the property manager to ensure the right processes are in place and the obligation is being fulfilled properly.
The cost can vary depending on the contractors and market fluctuations. We recommend that when presented with this kind of make good, the tenant should budget for an exit cost in the vicinity of $200 – $300/m2, depending on the size and contents of the fit out.
- Cash Settlement:
This effectively means that the tenant and landlord come to an agreement during the negotiation stages of the lease where the tenant will provide the landlord with a cash sum at the end of the lease, which the landlord will use to manage the make good of the tenancy.
The ‘make good’ clause is an important part of any office lease. It is essential that the tenant understands this clause in detail and the obligations associated with it before signing an agreement. If your lease is already underway, it may be time to review this clause and if required, budget accordingly.