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What is a make good clause in a commercial lease in Australia?
- Nikolina Milošević
- May 4
- 5 min read
Updated: 3 days ago
A make good clause is a provision in a commercial lease that requires the tenant to return the premises to a specified condition at the end of the lease term.
In most Australian commercial leases, the make good obligation goes well beyond leaving the premises clean. It can require a tenant to remove their entire fit out, patch and repaint walls, replace flooring, and restore the premises to the condition it was in at the start of the lease, or in some cases, to base building condition.
For many small business owners, the make good clause is the single most expensive clause in their lease, and most do not know it is there until the lease is ending.
What a make good clause typically requires
The exact scope of a make good obligation depends on how the clause is drafted, and every lease is different.
Common requirements we see include the removal of all fixtures, fittings and partitions installed during the tenancy, reinstatement of any walls, ceilings or flooring that were altered during the lease, patching, sanding and repainting of all internal surfaces, removal of signage and restoration of the external façade, removal of cabling, data points and electrical installations, and return of the premises to base building condition or to the condition recorded in the condition report at the start of the lease.
Some clauses go even further - we have seen make good clauses that require the tenant to replace carpet regardless of its condition, repaint in a colour specified by the landlord, and reinstate walls that the landlord consented to removing during the lease. What your clause actually requires depends entirely on the wording of your lease.
If you are not sure what your make good clause requires, book a call with us to get advice on your obligations:
Why make good clauses catch tenants by surprise
The make good clause is usually buried in the body of the lease and rarely discussed at the negotiation stage. Most tenants focus on the commercial terms, rent, term, outgoings, location, and incentives, and skim past the obligations that take effect years later.
By the time the lease is ending, the clause is locked in, and the cost is the tenant's to bear.
The cost of make good can be a couple of thousand, but more often it is much larger – even for small commercial premises in Perth. In most cases, the tenants had no idea the obligation was that broad when they signed. By the time the landlord issued the make good demand, the lease was ending, the business had other pressures, and there was limited room to push back.
The difference between fair wear and tear and full restoration
One of the most important distinctions in any make good clause is whether the tenant's obligation is limited to fair wear and tear, or whether it extends to restoring the premises to the condition they were in at the start of the lease.
Fair wear and tear is the normal deterioration of a premises through ordinary use. A tenant who is only responsible for fair wear and tear may not be required to repaint, replace flooring, or undo minor marks and impressions caused by reasonable use of the premises.
Full restoration is a significantly greater obligation. It can require the tenant to undo every change made to the premises during the lease and return it to a defined baseline condition, even where the premises have simply aged normally.
The cost difference between the two can be tens of thousands of dollars.
Tenants should always push to have their make good obligation limited to fair wear and tear, and to have any restoration obligations removed or narrowed.
The importance of a condition report
A condition report is a document prepared at the start of the lease that records the condition of the premises, usually with photographs, on the day the tenant takes possession. A well prepared condition report is the tenant's best protection against an unreasonable make good claim at the end of the lease.
Without a condition report, disputes at the end of the lease often come down to memory, landlord expectation, and whatever the lease happens to say about the state of the premises at the start. With a condition report, the tenant has documented evidence of the starting point and can limit their obligation accordingly.
The condition report should be specific, dated, signed by both parties, and attached to the lease. Photographs should cover every room and every surface. If the landlord does not provide a condition report, the tenant should prepare one and ask for it to be attached to the lease.
What you can negotiate before you sign
Before signing a commercial lease, tenants can push back on make good obligations in several ways. The most effective positions are to limit the obligation to fair wear and tear only, remove any requirement to return the premises to original condition, exclude the removal of fit out that the landlord may want to keep for the next tenant, require a condition report at the start of the lease with photographs attached and signed by both parties, and cap the financial exposure for make good obligations in the lease itself.
Landlords regularly accept narrower make good clauses when tenants push back. What they rarely offer is a narrower clause in the first draft.
If you want to understand what is negotiable in your lease, book a Strategy & Advice Consult with us.
What to do if your lease is ending and you are facing a make good claim
If your lease is ending and your landlord has issued a make good demand, get legal advice before agreeing to anything, and before you hand back the keys.
The scope of what you actually owe depends on the exact wording of the clause in your lease. In some cases, the landlord's demand goes beyond what the lease requires. In others, a commercial negotiation can reduce the cost significantly, particularly where the landlord intends to refit the premises for a new tenant in any event.
The worst outcome is to agree to a make good figure, hand over the keys, and then discover the lease did not require the work to begin with.
The bottom line
A make good clause is one of the most important, and most overlooked, provisions in any commercial lease. It can cost a small business tens of thousands of dollars at the end of the lease. It is negotiable before signing and far less negotiable after.
If you are about to sign a commercial lease, do not assume the make good clause is standard or harmless. It rarely is. Get it reviewed, understand what it requires, and negotiate it before you commit.
Get your lease reviewed before you sign
Book a call with us to review your commercial lease:
This blog is intended for general information purposes only and does not constitute legal advice. The content is based on Australian law and may not be current at the time you read it. Legal requirements may vary depending on your circumstances. Always seek independent legal advice
tailored to your specific situation before acting on any information provided.
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