Make-good obligations are legal requirements in a commercial lease to restore a tenancy to an agreed condition before the keys are handed back to the landlord. This typically involves removing tenant installations, repairing damage and reinstating original services.
These obligations are not optional and can result in significant costs if the scope is not understood early.
Full strip-out versus condition make-good
A full strip-out requires removing all walls, ceilings and joinery to return the space to its shell or base build condition. For large, highly fitted office spaces in Melbourne, these works can cost hundreds of thousands of dollars and take weeks to complete. Condition make-good focuses on returning the space to its state at lease commencement while allowing for fair wear and tear.
Cash settlements and make-good equivalents
Some landlords accept a make-good equivalent, which is a cash payment in lieu of physical works. This avoids the logistics and disruption of running a strip-out project while moving into a new office. The payment is usually based on the estimated cost of the works, though the final figure depends on your lease and negotiating position.
Retail lease specifics in Victoria
Retail make-good is governed in part by the Retail Leases Act 2003, which places some limits on what landlords can require. Common requirements include the reinstatement of shopfronts, signage and internal fitout elements. This process is often more complex for food and beverage tenants due to extensive plumbing and ventilation works.
Avoiding standard of works disputes
Disputes often happen when memories fade regarding who installed specific joinery or partitions. Fitout records and landlord approval correspondence are the best defence in these scenarios. If a genuine dispute arises about the standard of works, an independent assessment from a qualified third party is usually the fastest way to resolve it.
Managing your exit
Progressive Corporate provides free consultations to review your space and lease requirements. We give you an honest picture of the works involved before you commit to ensure you leave your tenancy on time and on budget.
Frequently asked questions
When should I get legal advice on my make-good clause?
You should get a commercial lawyer to review the clause before signing if it is long, complex or requires a return to base build condition.
What is the benefit of a cash settlement?
It allows the tenant to avoid the disruption of a strip-out project while the landlord gets funds to manage the reinstatement themselves.
How do I prove what was already in the space?
A thorough condition report from day one, including photos and written descriptions, is the best way to avoid negotiations based on memory.
Questions to ask your fitout company before you sign
- Does the lease require a full strip-out to base build or just a return to the condition at commencement?
- Is there a cash settlement option available in lieu of physical make-good works?
- What specific documentation or condition reports exist to define the original state of the tenancy?