A tenancy can run smoothly for years, then become unexpectedly expensive in its final weeks. A make good clause in a commercial lease determines what the tenant must do to the premises when the lease ends – and the answer can range from a thorough clean to removing a full fit-out and restoring bare walls, ceilings and services.
For NSW business owners, this obligation can be one of the largest financial commitments in the lease. For landlords, clear make good provisions help protect the condition and future leasing potential of the property. The detail matters for both parties, particularly where premises have been fitted out for hospitality, retail, medical, office or specialised commercial use.
What is a make good clause in a commercial lease?
A make good clause sets out the condition in which the tenant must leave the premises at the end of the lease, including after an option term or an earlier termination. It may require the tenant to repair damage, remove alterations and fixtures, clean the premises, return keys and security devices, and reinstate the property to a stated condition.
There is no single standard meaning of “make good”. Its effect depends entirely on the wording of the lease, the condition of the premises at the beginning of the tenancy, and the works carried out during the term. A clause requiring a tenant to return premises in “base building condition”, for example, has a very different cost from one requiring the premises to be left clean, tidy and in substantially the same condition as at commencement, allowing for fair wear and tear.
That distinction should be addressed before the lease is signed, not when the business is preparing to move out. By that point, the tenant may have limited bargaining power and a strict deadline to meet.
Why make good obligations create costly surprises
Many tenants focus first on rent, outgoings, incentives and the length of the term. Those are essential commercial issues, but an unclear end-of-lease obligation can erode the value of an attractive incentive or a lower starting rent.
A fit-out that supports a business today may be costly to remove later. Think of internal walls, flooring, cabling, signage, shelving, kitchen equipment, plumbing, air conditioning changes, security systems or accessibility works. Even where the landlord approved those works, approval does not necessarily mean the landlord has agreed to keep them at lease end.
The practical cost is not limited to demolition. It can include trades, project management, waste removal, building approvals, repairing damage caused by removal, professional cleaning and rent or holding-over exposure if the works delay handover. If a dispute arises, the landlord may seek to draw on a bank guarantee or security deposit, subject to the lease terms and applicable law.
Landlords also face risk where the clause is vague. A tenant may leave behind alterations that are unsuitable, unsafe, poorly documented or difficult to remove. Clear drafting helps avoid disagreement about whether an item is a fixture, a tenant’s chattel, or an alteration the tenant must reinstate.
Start with the premises condition at lease commencement
A sensible make good clause is anchored to reliable evidence of the starting condition. Without it, arguments often arise years later about what was already worn, damaged or installed before the tenant moved in.
A detailed condition report should be prepared at the start of the lease and supported by dated photographs or video. It should record the state of floors, walls, ceilings, doors, glazing, bathrooms, services, lighting, air conditioning, fire safety equipment and existing fittings. If the premises are delivered as a shell, that should be expressly recorded. If they are handed over with an existing fit-out, the report should identify what belongs to the landlord and what condition it is in.
The lease should also recognise fair wear and tear. This generally means deterioration through ordinary use over time, not damage caused by neglect, misuse or unauthorised works. The wording still needs care. Fair wear and tear will not necessarily excuse a tenant from an express requirement to remove its fit-out or reinstate altered areas.
Make good terms that deserve close attention
The most useful clause is specific enough that both parties can understand the likely end-of-lease work before they commit. Broad phrases such as “make good as required by the landlord” can leave too much unresolved, especially if the landlord’s requirements are not limited by reasonableness or a defined scope.
Removal of fit-out and alterations
The lease should identify whether the tenant must remove all fit-out works, only particular items, or only alterations requested by the landlord. A tenant may negotiate for the landlord to nominate required removals at a stated time before lease expiry, rather than being able to make an open-ended demand at the end.
This is particularly valuable for businesses making a significant investment in the premises. The parties can agree at the outset that certain approved works, such as upgraded flooring, partitions or plumbing, will remain. That agreement should appear in the lease or a written deed, not rely on an informal conversation or an approval email that says nothing about make good.
Reinstatement standard
“Reinstate” must answer a practical question: reinstate to what? Possible standards include the condition shown in the entry condition report, base building condition, or a particular agreed plan. A base building requirement can be appropriate where a tenant has built a highly specialised premises, but it should be understood and priced into the deal.
The clause should also address damage caused by removal. Pulling out cabinetry may damage floors and walls; removing signage may leave holes or faded areas. The tenant’s obligation may extend to repairing that damage to a defined standard.
Notice, access and timing
Good drafting provides a process, not just an end result. It may require the landlord to inspect and provide a written list of outstanding items within a set period. It should allow reasonable access for the tenant’s contractors and make clear whether works can occur after trading has ceased but before the lease end date.
Timing is crucial. If works cannot be completed before expiry, the tenant may need the landlord’s consent to remain in occupation. Otherwise, a dispute over handover may lead to additional rent, damages or use of the security.
Dilapidations and services
A make good obligation can overlap with repair obligations. The tenant may be responsible for repairing damage to the premises, but the landlord may remain responsible for structural elements or capital replacement of certain building services. The outcome depends on the lease and the nature of the issue.
For a commercial or retail premises, it is worth checking who is responsible for air conditioning, exhaust systems, grease traps, fire services, electrical upgrades and compliance works. These items can be expensive, and their condition at handover should not be left to assumption.
Negotiating a fairer outcome before signing
There is no universally fair make good position. It depends on the premises, the tenant’s fit-out, the term, the incentive offered and how readily the space can be leased to another operator. A landlord may reasonably want the flexibility to return a customised tenancy to a neutral condition. A tenant may reasonably seek certainty about the cost of leaving.
Tenants can often seek to limit the obligation to a clear scope, exclude approved items that the landlord agrees will remain, and require advance written notice of any removal requirements. It can also be sensible to negotiate a cap on specified reinstatement works, although a landlord may resist this where the proposed fit-out is extensive.
Landlords should ensure that any agreed exceptions are documented precisely. If the landlord wants the right to decide later whether works remain, the lease should set out when and how that decision will be made. The landlord should also consider whether the security amount realistically reflects the likely cost of uncompleted make good works.
For retail leases in NSW, statutory requirements may also apply, including disclosure obligations. Those requirements do not replace careful review of the lease’s make good provisions. A disclosure statement may flag the issue, but it is the lease wording and the documented agreement between the parties that will shape the obligation.
Questions to resolve before the lease is executed
Before signing, both parties should be able to answer these practical questions:
- What condition is the premises in at commencement, and is there a signed condition report?
- Which existing items belong to the landlord, and which items will be brought in or installed by the tenant?
- What approved alterations must be removed, and what can remain at the end of the lease?
- Is the required outcome base building condition, the entry condition, or another agreed standard?
- When must the landlord notify the tenant of make good requirements, and what happens if works are incomplete?
A commercial lease is not simply an agreement about occupation and rent. It allocates the cost and risk of entering, operating from and eventually leaving a premises. Reviewing the make good clause early gives tenants a chance to budget properly and negotiate certainty, while giving landlords a clearer path to protecting their property. Careful legal advice before execution can turn a vague end-of-lease concern into a workable, documented plan for both sides.