How to: Make good at the end of your lease
If you’ve decided to relocate your business or end your lease, you need to ensure you “make good” the premises before handing back the keys.
What does make good mean?
It’s a standard clause included in most commercial leases requiring tenants to return the property to its original state. Make good clauses are most likely to appear in an agreement where the tenants lease the building as a shell or intend to change an existing fit-out.
Make good is a standard clause requiring tenants to return the property to its original state.
Make good provisions are often not well understood by business people and the clauses themselves can be ambiguously worded and inserted into the lease agreement in a hurry.
Even if a make good clause doesn’t appear in the lease agreement, a landlord may be able to take common law action against you if don’t return the premises in line with its original condition.
So what should you do if you are about to finish up your lease?
How to make good at the end of a lease
Check the lease agreement
While most make good clauses are vague, some are straight to the point and others positively brimming with inclusions and exceptions.
List the changes
Make a list of everything you have changed in the property. The best way to do this is to start at the front door and walk through the property in a clockwise fashion, noting everything you have changed.
The most common items you should ensure you have covered in your list include:
- Fittings such as shelves
- Electrical points and lighting
- Painted walls and other decorations
- Floating floorboards or carpets
- Computer room or data centre
- Drapes and blinds
- Air conditioning and heating.
Check with the landlord
Once you have your list, it’s time to check with the landlord to see what they want. Sometimes an owner will see the changes you’ve made to the property as an improvement and will be happy for them to remain.
But some owners will insist on a cash settlement in lieu of make good. In fact, cash settlements are becoming more common as it often suits the departing tenant and the new tenants, who have plans to remodel the premises anyway.
Tenants can also try to negotiate a make good side deed. Side deeds can be the result of a fractious relationship between the parties and carry more risk for the departing tenant.
Side deeds usually require a consultant’s report, a building condition report and itemised dispute resolution provisions.
Keep it clean
Regardless of what your lease states, you should ensure you return the premises in a clean and tidy condition.
You should ensure you return the premises in a clean and tidy condition.
Handing back clean premises is a universal obligation and this is usually interpreted as including repairs and maintenance to bring the premises back to their original condition and these items may be listed in your lease.
Redecorate the premises
With most leases lasting five years or more, there is usually a requirement for the tenant to repaint the walls and replace floor coverings such as carpets.
For landlords and tenants alike, it’s much better to agree on a plain English style make good clause at the start of the tenancy, but this is often not practical.
Agents often feel pressure to have a new tenant sign on the dotted line and make good clauses can be a final barrier to getting a deal.
It’s better to agree on a make good clause at the start of the tenancy.
For the tenant, their mindset is focused squarely on how they to turn this space into an exciting new business – not on disassembling it years down the track.
But for both parties, it’s worthwhile to ensure they agree on make good arrangements up front, then document and photograph the premises to minimise any disagreements and expense when it comes time to move.