Almost all commercial and retail leases will contain a ‘make-good’ clause, but what does make-good actually mean? This article will discuss the importance of carefully reviewing the make-good clause and what to look for to ensure that there is no ambiguity for either party at the end of the lease.
A make-good clause determines the tenant’s obligations when vacating the premises and is often an issue of dispute between the lessor and lessee. As a result, it is important that both parties understand the clause prior to entering the lease to avoid any surprises at expiry or termination.
We often see different types of make-good clauses in leases. The most common causes we see are:
- Returning the premises to base building configuration; and
- Returning the premises to the condition as at the commencement date or as per the entry condition report.
Returning the premises to base building configuration
This make-good clause is important to look out for, particularly if the tenant intends on installing a fitout. The obligation of the tenant, in this case, is to remove the full fitout (including but not limited to removal of partitions, electrical work, and repainting to the original colour) from the premises so that it is essentially a “blank canvas” when the tenant vacates. This can be quite a costly (and in some cases, timely) exercise for the tenant as they would generally be required to engage contractors to undertake the removal. It may also result in additional repairs if any damage occurs during the fitout removal.
Returning the premises to the condition as at commencement date or as per the entry condition report
This is a basic make-good clause and is recommended if it is agreed that any fitout will be installed prior to the commencement date or prior to the condition report being completed. If that is the case, the tenant will only be required to remove their property and repair any damage to the property on expiry or termination, making it much less onerous on the tenant.
As discussed, the make-good clause can be highly contentious at the end of the lease if the tenant does not fully understand their obligations at the commencement. We recommend having it reviewed to avoid any risks or additional unexpected costs.
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