Home Business & Company What is a Tenant's Obligation to Make Good Under a Lease?

What is a Tenant’s Obligation to Make Good Under a Lease?

In this article we will be looking at a tenant’s obligation to make good under a lease.

What is make good?

Make good is a term commonly applied to a set of obligations placed on a tenant under a lease, to return the premises to the landlord, in a similar condition to that at the start of the lease.

When it comes to make good obligations under a lease, it is always important to read and consider the terms of the applicable clause. This is because make good obligations are often negotiated terms of a lease and can contain such terms as the landlord and tenant agree.

If you are entering into a short term lease with limited or no fit out, your make good obligations under your lease might be as simple as removing your property and leaving the premises in a clean and tidy state.

Most make good obligations however will generally require a tenant to:

Remove their property from the premises;
Remove their fixtures, fittings and fit out from the premises;
Remove all signage from the premises;
Redecorate the premises (which may include painting and new floor coverings);
Service air conditioning units;
Leave the premises in a clean and tidy state;
Remove any rubbish; and
Fix any damage to the premises caused by the tenant.

When do make good provisions apply?

Make good obligations will normally apply regardless of how the lease ends, for example they will apply if the lease is terminated, surrendered or expires.

Also, while make good obligations generally apply to the end of a lease, there could be (and often are) other make good obligations during the term of a lease. For example, a tenant usually has certain maintenance requirements to meet during the term of the lease (they cannot let the premises fall into disrepair) and it is a common requirement under a long term lease that a tenant redecorate the premises on any renewal of the lease.

Tenants need to understand that usually make good works must be performed before the end of the lease. If they are not, there is often an ongoing obligation to continue paying the rent and other moneys payable under the lease until the make good works have been completed to the landlord’s satisfaction. You could also be up for other costs such as paying damages to the landlord for loss of income if the make good works prevent the landlord from re-letting the premises.
Make good obligations apply at the end of a lease but it is important that a tenant understands these obligations before they enter into a lease when the make good terms are being negotiated and agreed.

Condition Reports

Make good obligations are often a source of dispute between a landlord and tenant and one way to limit the grounds for dispute is to have a Condition Report prepared prior to occupation of the premises by the tenant.

Condition Reports can be undertaken by professional companies such as property managers or by the landlord and tenant themselves. They should contain a detailed description of the premises and generally include photographic evidence (and even video) of the state and condition of the premises on the date the tenant first takes possession of the premises. In describing the condition of the premises, defects and issues with the property should clearly be described.

Condition Reports can also be useful resource for documenting the landlord’s fixtures and fittings so there is no confusion over what is, and what isn’t, provided under the lease.

Condition Reports should be signed and acknowledged by both the tenant and landlord.

How far can make good provisions go?

Make good obligations can require a tenant to return the premises back to their original condition and even leave the premises as a bare shell (common in retail shopping centre leases). That is everything you provided must be stripped out and removed (fixtures, fittings and all building alterations) and any damage done in doing so must be repaired by you at your cost.

Tenants if you are planning on making a significant fit out to the premises then this can be used as a bargaining point with the landlord. For example, if there are fixtures or fit out that are too costly to remove or that you will not need at the end of your lease, ask your landlord if the items can remain and become the property of the landlord. Important: if the landlord agrees to this (they are under no obligation to do so) make sure the agreement is documented in writing.
Tenants if you are taking over an existing lease, make sure that you clarify with the landlord to what state the premises have to be made good (or better yet get a Condition Report signed off). Do not assume the condition of the premises from when you take over the lease is the base line.
Tenants be aware that if you do not comply with your make good obligations or leave behind your property or rubbish that the Landlord has to then dispose of, the Landlord can most likely recover the cost of doing so from you and/or deduct the costs for doing so from any security deposit being held.

How We Can Help

If you would like legal advice on your make good obligations under your lease our commercial law team here at Roberts Crosbie Mortensen Lawyers would be more than happy to assist. Please contact Amanda Crosbie or Hamish Taylor in the first instance. And remember, our approach here at Roberts Crosbie Mortensen Lawyers is to make business happen, not to get in the way.

The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.