Make Good Obligations Explained for Sydney Tenants

What are make good obligations in a Sydney lease?

Make good means restoring leased premises to the condition the lease requires at the end of the term. In many commercial leases, this involves removing tenant installed items such as partitions, cabling, kitchens, signage and special services, then repairing the base building where required.

The detail sits in the lease. Some clauses require reinstatement to a bare shell. Others require return to the condition at lease commencement. Others reference a landlord approved scope or a particular base building standard. These differences carry very different costs.

This article offers general information only. Requirements vary by lease and can change, which means a lawyer should confirm the position for your premises.

How is the make good clause defined?

The definitions inside the clause matter more than the headline wording. Look closely at these elements.

• The reference condition: original condition, base building condition, shell condition or something else.
• Fair wear and tear: whether the tenant is excused from normal ageing of the premises.
• Landlord works: whether the tenant must remove items that the landlord approved or even requested at the start.
• Services and cabling: how far above ceiling and in risers the tenant must go.
• Cash settlement: whether the landlord may accept a payment instead of physical works.
• Timing: when the works must be finished, and what happens if they overrun.

Ambiguity creates disputes. A phrase such as "reinstate to the satisfaction of the landlord" gives wide discretion. Where possible, ask for objective measures, a schedule of works or an agreed condition report at the start.

Ask your lawyer to explain how the clause would operate with the fitout you plan. Fitout choices at the start, such as bespoke ceilings, floor penetrations or internal staircases, can increase reinstatement costs later.

How do you plan and budget for make good from day one?

In my view, make good belongs in the fitout budget from the first day. A tenant who records the estimate as a future liability sees the full cost of the lease and makes better design decisions.

A sound approach involves these steps:

1. Read the make good clause before you finalise design, and brief your designers on what it requires.
2. Record the original condition of the premises with photos, drawings and a signed condition report.
3. Ask a cost consultant or builder to estimate the make good cost at the time of fitout, and update it periodically.
4. Keep as built drawings, service records and certificates in an organised file.
5. Choose fitout elements with the end of the lease in mind, such as demountable partitions and reusable joinery.
6. Review any security the landlord holds, such as a bank guarantee or deposit, and understand how it connects to make good.

Design choices have a real effect. Standard ceilings, accessible services and finishes that are simple to remove all reduce the work at the end. Specialised installations, such as raised floors, internal stairs or heavy plant, may bring higher costs.

Tenants should also consider how accounting rules treat the liability. Your finance team and auditor can advise how to recognise a make good provision.

How do you negotiate the make good clause at lease signing?

Your bargaining position is strongest before you sign. A landlord keen to secure a tenant is more willing to adjust the clause than one dealing with an existing tenant at expiry.

Options to explore include:

• A reduced scope, such as retaining items the next tenant will likely reuse.
• An agreed list of items that remain at lease end.
• Fair wear and tear protection clearly written into the clause.
• A cap on make good costs, or a cash settlement figure agreed in advance.
• Recognition of items the landlord approved or installed.
• A clear process and timetable for the end of lease inspection.

Landlords often accept that a well fitted floor has value to the next occupant. Where that is the case, a landlord may agree to leave suitable items in place. The outcome depends on the building, the market and the quality of the fitout.

Take legal advice. A lawyer can identify risks in the wording and suggest alternatives that suit your circumstances.

How do you manage make good at the end of the lease?

Start early. Many leases require notice dates, and make good works need time for design, tender and construction. Beginning the process well ahead of expiry protects you from holdover rent, which can be higher than normal rent.

A practical sequence looks like this:

1. Review the lease and confirm the make good scope, the dates and the process.
2. Compare the current premises with the condition report and records from the start of the lease.
3. Engage a make good specialist or builder to inspect and prepare a scope and estimate.
4. Open a conversation with the landlord about expectations, and agree the scope in writing where possible.
5. Tender the works to qualified contractors, and obtain the necessary approvals.
6. Complete the works, document them with photos and certificates, and arrange a joint inspection.
7. Agree the handback in writing, and obtain confirmation that obligations are satisfied.

Coordinate make good with your move. Technology decommissioning, records removal, furniture and the new fitout all share the same timeline. A good relocation plan treats the old premises as a project with its own milestones.

Communication matters. A cooperative relationship with the landlord's representative tends to produce a quicker and fairer outcome. Keep a written record of every agreement.

Final thoughts

Understanding make good obligations turns a feared end of lease cost into a managed part of your property plan. Read the clause, record the starting condition, budget from day one and start the process early.

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