“Make-good” clauses — the provisions in a retail lease that require a tenant to restore the premises at the end of the lease — are one of the most disputed aspects of commercial leasing. While landlords want their premises returned in good condition and ready for the next tenant, tenants often feel blindsided by costly and sometimes ambiguous end-of-lease obligations.
Courts and tribunals regularly examine make good clauses for fairness and enforceability. So, what’s fair — and what’s not?
A make-good clause typically requires the tenant to:
- Remove their fit-out and signage,
- Repair any damage (beyond fair wear and tear),
- Repaint or refurbish the premises,
- Return the premises to either a “clean and tidy” state or a specific prior condition (often referred to as “base building condition” or “original condition”).
The scope of the obligation depends entirely on how the lease is worded.
Make-good clauses are enforceable provided the clause is clear and unambiguous; courts and tribunals (like VCAT in Victoria and NCAT in NSW) will enforce make-good obligations. But vague clauses often cause problems – for example “The tenant must leave the premises in the same condition as at the commencement of the lease, fair wear and tear excepted.” This may seem reasonable, but without a condition report or photographic evidence from the start of the lease, disputes over what the original condition actually was can quickly arise.
From both a legal and commercial perspective, the following are often considered reasonable or “fair” make-good expectations:
- Removal of tenant-installed fit-out – particularly for non-integrated installations like counters, shelving, or display units.
- Repair of damage caused by the tenant, including damage from installing or removing fixtures.
- Repainting or cleaning especially where the premises was freshly painted at commencement.
- Returning keys, access passes and security codes
- Leaving the premises clean and free of rubbish or personal property
On the other hand, certain make-good demands tend to cause friction, particularly when they impose obligations that go beyond what’s necessary or reasonable:
- Return to base-building condition – this is often seen as excessive, especially where the premises were already fitted out when the tenant moved in.
- Undocumented condition requirements – if there is no condition report at the start of the lease, requiring a return to a prior condition may be impossible to validate.
- Removal of landlord’s fixtures – tenants should not be responsible for removing or replacing landlord-supplied infrastructure (e.g. air-conditioning, base lighting, structural flooring).
- Extensive strip-out and reconstruction – where the fit-out has substantially improved the premises, forcing full demolition may not be justified — and could result in a waste of resources.
- To the satisfaction of the Landlord – some leases provide for the lease to continue until the landlord is satisfied that all the make good work has been completed to their satisfaction. This can cause huge problems for tenants if a dispute arises and can result in large costs, even after the tenant has moved out of the property.
The Role of Condition Reports
A condition report or entry report is one of the most effective tools to avoid make-good disputes. It records the state of the premises when the lease begins and can be:
- Signed by both landlord and tenant,
- Supported with date-stamped photographs,
- Referred to at the end of the lease to guide expectations.
Although not mandatory under the legislation in Victoria or NSW, a condition report is strongly recommended.
What About Cash Settlements for Make-Good?
Many landlords and tenants prefer to negotiate a make-good payment at the end of the lease in lieu of physical works. This can be based on:
- A quote for restoration works,
- A pre-agreed schedule of costs, or
- Independent valuation.
This avoids disputes over the scope or quality of work and enables the landlord to prepare the premises for the next tenant as they see fit. If a cash settlement is agreed, this should be fully documented, refer to the lease and the relevant make-good obligations and signed by the landlord and tenant
Should Make-Good Apply to Renewal Periods?
If a tenant exercises an option to renew, the make-good clause generally does not kick in at that point — it only applies at the end of the entire lease term, unless the lease states otherwise.
Tenants should check whether make-good applies at the end of each term, or only at the final expiry after all options are exhausted.
Tips For Tenants:
- Negotiate limits: Seek to cap the make-good obligation or tie it to specific, documented conditions.
- Insist on a condition report: Protect yourself from vague or exaggerated expectations.
- Understand your obligations early: Don’t leave it until the last month of the lease.
Tips for Landlords:
- Be specific: Clearly outline what “make-good” actually means in your lease.
- Inspect regularly: Mid-lease inspections help identify maintenance issues before they become major disputes.
- Be commercially reasonable: An overly harsh or vague make-good clause may deter quality tenants or lead to tribunal challenges.
A good make-good. Clear, proportionate, reasonable.
Make-good clauses are a legitimate part of retail leasing — but they must be clear, proportionate, and reasonable. A fair balance protects the landlord’s asset while recognising the tenant’s right to a clean exit, without costly surprises.
Whether you’re drafting a lease, renewing one, or preparing to vacate, it’s worth having make-good obligations reviewed early — and, if needed, negotiated before things turn sour.
Disclaimer
This article is for your information only and is not legal advice. We’re more than happy to help with your individual issues – just reach out.
Like many businesses, we’re exploring how AI can assist us in providing our services. We used ChatGPT, a language model developed by OpenAI to help us write this article, but all content is checked by a real person.