What to make of ‘Make Good’ clauses
Imagine you run a small business.
Because the business is growing, you’re on the lookout for larger commercial premises to move into.
Or maybe you’re buying a business and need the current lease assigned to you or a new lease as part of the purchase.
In either scenario, you will need to consider your obligations as tenant (and as personal guarantor) under the lease agreement. And part of that analysis should include close review of your liability under the Make Good clause.
What is a Make Good clause?
A Make Good clause governs the condition in which the leased property must be returned to the landlord at the conclusion of the term.
Depending on the effect of the Make Good, the obligations could be considerable. The obligations could include the following:
- to return the property in a tidy condition free of all tenant property;
- to remove all tenant fit-out;
- to restore the property to its original condition as at the beginning of the lease; and/or
- to return the property as an empty shell.
What can be included in a Make Good?
Depending on how the Make Good is framed, the tenant may be liable to attend to a wide range of works, including:
- repairing damage to the property;
- removing or reinstating partitions, walls and fixtures;
- reapplying wall, floor and ceiling finishes; and
- reinstating air conditioning and fire services to an open floor plan.
The costs of these measures can be considerable, meaning the tenant’s greatest expense under the lease may come at the very end.
The key is to realise that these are issues to address at the beginning of the lease, not at the end. They are part of the contract and are one of the key commercial terms that needs to be negotiated from the outset.
Assignment of Leases
One particularly challenging scenario may be where an existing lease has been assigned to you as incoming tenant. This might occur as part of a business purchase.
In this scenario, the incoming tenant takes the lease subject to the original tenant’s obligations. If this includes an obligation to restore the property to its original condition as at the beginning of the lease, the incoming tenant will need to understand what works the outgoing tenant has undertaken and what will be required to meet the Make Good obligations.
For example, what if the outgoing tenant has undertaken substantial work such as removing or constructing interior walls? The incoming tenant may have considerable practical difficulties even understanding what the property looked like at the beginning of the lease, let alone quantifying the cost of restoring the property to that condition.
That’s why it’s important to address the issues from the outset, before the lease agreement is signed and you’re locked in.
Aintree Group Legal will be happy to discuss all of your commercial law and leasing needs. Contact us today.
This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your lawyer.
