At Ensure Legal, we often see disputes arise over make good obligations at the end of a commercial lease. A make good clause outlines what condition the tenant must return the premises to when the lease ends. Understanding these obligations can help tenants and landlords avoid unnecessary costs and delays when vacating a property.
General Make Good Obligations
For short-term commercial leases of three years or less, the Property Law Act 1974 states that tenants are responsible for repairing any damage they or their guests caused to the property. This applies even if a different clause is written in the lease, as section 106 of the act overrides any conflicting lease terms.
For all commercial leases, regardless of length, section 105 of the act requires tenants to return the premises to the landlord in good and tenantable repair, taking into account their condition at the beginning of the lease, with reasonable wear and tear, and damage caused by fire, flood, lightning, storm, or tempest excepted.
However, the act allows landlords and tenants to agree on different return conditions, which are typically specified in the lease as make good conditions.
Make Good vs Redecoration
Make good and redecoration clauses are often confused, but they serve different purposes.
Make good obligations require tenants to return the premises to the agreed condition at the end of the lease.
Redecoration clauses require tenants to carry out maintenance or cosmetic upgrades at set intervals during the lease term, such as repainting walls or replacing carpets.
Make Good Options for Tenants
Tenants usually have different ways to meet their make good obligations, depending on what is agreed in the lease. The most common options include:
Physically making good, where the tenant organises and pays for the necessary repairs or restoration, usually requiring professional workmanship.
Cash settlement, where the tenant negotiates a financial settlement with the landlord instead of completing the physical works.
If make good obligations are not completed on time, the tenant may be liable for additional rent, penalties, or deductions from the security deposit.
Common Causes of Make Good Disputes
Disputes over make good obligations often arise due to:
Lack of evidence showing the original condition of the premises when the lease began.
Vague or unclear make good clauses.
Disagreements over the standard or quality of work required.
Disputes about removing valuable additions that were installed during the lease.
The return of the security deposit being delayed due to unresolved make good issues.
Key Considerations for Tenants
Prepare a condition report at the start of the lease to avoid disputes over the original state of the premises.
Discuss make good requirements with the landlord early to ensure a smooth handover and timely return of the security deposit.
Stay on top of general maintenance and wear and tear to prevent issues from accumulating over time.
Balancing the Interests of Tenants and Landlords
Make good requirements are often a point of negotiation between tenants and landlords. Tenants may feel that removing fit-outs or improvements is unnecessary, while landlords often prefer the premises to be returned in a neutral condition to attract future tenants. Finding a practical solution that works for both parties can save time and money.
Common Make Good Requirements
Make good obligations vary between leases, but they often include:
Repairing any damage caused during the lease period.
Removing all tenant-installed fixtures, partitions, and flooring.
Restoring the premises to an open-plan layout by removing walls.
Returning base building services such as air conditioning and fire systems to their original state.
Ensuring the premises are clean and tidy.
Some leases only require basic cleaning, while others may require repainting or removing extensive fit-outs.
Establishing the Original Condition of the Premises
If there is little or no evidence of the original condition of the premises, tenants should consider:
Gathering any documentation, photos, or witness statements to show the condition at the start of the lease.
Using mediation to reach a fair solution without going to court.
Mediation and Resolving Disputes
If a dispute arises over make good obligations, consider the following steps:
Seek legal advice to understand your rights and obligations under the lease.
Discuss the issue with the other party to clarify expectations and find a resolution.
Review the lease to determine if the requested work aligns with the agreed terms.
Evaluate the cost of legal proceedings and whether pursuing a claim is financially viable.
Apply for mediation with the Queensland Small Business Commissioner, which can mediate disputes up to 750,000 dollars in value.
If mediation does not resolve the dispute, the Queensland Civil and Administrative Tribunal can hear cases related to make good obligations in retail leases.
Our Advice
Make good clauses can have a significant financial impact on tenants at the end of a lease. Understanding your obligations early and negotiating fair terms in advance can prevent costly disputes.
If you need help reviewing your lease, negotiating make good requirements, or resolving a dispute, our team at Ensure Legal can provide expert legal advice. Contact us today to discuss your commercial lease concerns.
