The ‘make good’ clause can fast become a contentious area of any commercial lease agreement. For tenants, it’s easy to see it as a cash grab by landlords. A last-ditch effort to make the most of an exiting tenant. For landlords, it’s an utterly necessary clause that will ensure the tenant has a legal obligation to return the property in a similar condition as when they started the tenancy. The tension arises when the ‘lease agreement’ contract has been worded in such a way that allows for misinterpretation, or worse still, in a way vague enough to trip you up financially when trying to do the right thing.
What is the ‘make good’ clause?
‘Make good’ refers to the clause/s in a lease that set out how a tenant should leave a property at the end of the lease term. Basically, when the day comes to hand back the keys to the landlord, the property should be in the condition that is stipulated in the lease.
There are plenty of horror stories around tenants who have been held accountable to a ‘make good’ clause that has left them extensively out of pocket. Our advice, which may come as no surprise, is to pursue legal help before entering the negotiation arena of your commercial lease. We’d recommend using ‘LeaseHelp’ as an affordable way of getting on the right side of commercial lease sticking points, which can easily come back to bite you.
There Are Typically Four Types of ‘Make Good’ Obligations.
Removal of Detachable Property Only
This obligation is minimal and easily understood. In a nutshell, it only requires you to remove your property that is detachable; computer desks, filing cabinets, free-standing bookcases etc.
Removal of All Property and Basic Repairs
This ‘make good’ obligation requires more work but is still pretty straightforward. You must remove all property including your detachable property as well as any property that you’ve fixed to the premises. When removing your attached property you will most likely have to ensure that all walls etc. are in the same condition as the entry condition report. This may mean painting or sanding surfaces.
Return the Premises to the Standard Shown in a Condition Report
Return the premises to the standard shown in a condition report is another straightforward ‘make good’ clause, but one that trips up a lot of tenants, especially in the case of fit-outs. This obligation asks you to return the leased premises to the condition that was set out in the condition report. It’s a great idea to discuss any fit-out plans with your landlord when in the negotiation phase to ensure that both parties are aware of what will be required, and that condition reports are conducted at the most opportune time for you.
Base Building Standard
This type of ‘make good’ is more common in retail shopping centres where the landlord will request that the premises be returned in the state that they were in when they were first constructed. This is mainly because the landlord will not know what type of business the next tenant will be conducting from the premises. Depending on the specifics you may need to remove all plumbing, wiring, installations and fit-outs as well as attached and detached property. A base building standard clause can be a really expensive obligation. If your lease agreement requires this ‘make good’ clause, then it is imperative that you budget accordingly.
‘Making Good’ With the ‘Make Good’ Clause
The ‘make good’ clause is an important part of your commercial or retail lease. How you make peace with it is really up to you and the legal understanding you have. It is essential that you understand the obligations of your ‘make good’ clause, and how these obligations will affect your business if you decide to terminate or not to renew the lease. If your lease is already in place it may be time to review the existing ‘make good’ clause and budget accordingly.
If you’re entering into a commercial lease, remember that hurried or pressured negotiations can lead to disaster with potentially severe financial ramifications.
Long term business success comes from mitigating risks and making yourself less vulnerable. LeaseHelp by Sajen Legal was created to help business owners reduce the risks inherent with commercial leasing, and to ensure you are on a level playing field with your landlord.