Why you should honour the ‘make good’ clause in a commercial lease

Everyone likes to work in nice surroundings, but any business making improvements to the premises it leases could be setting itself up for an expensive surprise when the time comes to move on.

That’s because commercial leases contain a ‘make-good’ clause. This places an obligation on the lessee to return the property to its original condition at the end of the lease.

As part of a contract, the lessee has no choice other than to honour a make-good clause.

If they don’t the landlord will undertake the work and charge the outgoing tenant for the costs involved.

Also bear in mind that the landlord may not be motivated to ensure the work is done as economically as possible.

While the departing tenant may think they’ve made a great improvement to the property, the landlord, their letting agent and future potential lessees may not see it in the same way.

A fitted office may reduce the pool of potential renters if it can’t easily be adapted to meet a wide range of current needs.

A stripped-out office may be more attractive to renters who want to stamp their own style on the space.

Be prepared

Businesses entering into a commercial lease need to take the make-good clause into account right from when the lease is first being negotiated and throughout its life. Here are a few things to consider:

• At the very least the costs of making good need to be budgeted for as a long-term liability. Keep this in mind when undertaking alterations
• Can improvements be made with removable partitions, freestanding shelving and plug-in lighting? This will avoid structural changes that are more expensive to reverse
• Avoid excessive wear and tear. Desk chairs can make a real mess of polished timber floors. A protective mat can prevent the damage from occurring.

Negotiate and document

You will likely need landlord permission to make any structural changes to a commercial property. Include the make-good clause in any such negotiations.

If the landlord agrees that the changes will improve the future value and attractiveness of the property, you may be able to have them excluded from the make-good provisions. Just make sure there is a written agreement signed by both parties.

Get professional advice

Leasing a commercial property can be a daunting experience for many business owners, but it doesn’t need to be.

LDB’s real estate advisory group can assist renters with a retail and commercial lease, as well as tenancy negotiations.

Put our expertise to work in securing the best outcome from your commercial property leasing activities.

To find out more about our real estate advisory services, give us a call on (03) 9875 2900 or fill out the contact form below and we’ll be in touch.