Make Good Clauses In Commercial Leases: What Australian Businesses Need To Know

Signing a commercial lease is one of the biggest commitments you’ll make when running a business in Australia. The right premises can unlock growth-yet the wrong clause buried in the fine print can cost you dearly at the end of your term.

One clause that consistently catches tenants off guard is the “make good” clause. It sets the standard for the condition you must return the premises in when you leave. Get it wrong, and you could face a big bill, delays handing back the keys, or a dispute with your landlord.

In this guide, we’ll break down what “make good” actually means, what fair wear and tear covers, how these clauses work in practice, key negotiation tips, and the documents that help you manage risk. Our goal is to help you approach your next lease with clarity and confidence.

What Is A Make Good Clause?

A make good clause sets out your obligation, as a tenant, to “make good” (or restore) the leased premises to a specified condition when your lease ends. The exact obligation depends on the wording of your lease-there isn’t a one‑size‑fits‑all rule.

Common make good standards you’ll see

• Return to commencement condition: Hand the premises back in the same condition as when you moved in, allowing for fair wear and tear.
• Full reinstatement: Remove your fit‑out and signage, make repairs, repaint and recarpet, and restore to a “base building” or “warm shell” state.
• Repairs/maintenance only: Fix damage and complete routine maintenance without stripping out improvements.
• Redecoration: Refresh the premises (e.g. repainting or recarpeting) so they’re presentable for the next tenant.
• Cash settlement: Instead of doing the work, pay an agreed amount to the landlord at lease end.

The difference between these standards can be tens of thousands of dollars. That’s why it’s critical to read the clause carefully and negotiate it before you sign. If you’re unsure about the impact of a proposed clause, it’s wise to speak with a commercial lease lawyer before you commit.

Fair wear and tear-what does it cover?

Most leases exclude “fair wear and tear” from your make good obligations. In plain terms, that’s ordinary deterioration from normal use-things like minor scuffs on walls, faded paint from sunlight, or worn carpet in high‑traffic areas.

It won’t usually cover damage caused by neglect, misuse or unauthorised works (for example, broken glass from rough handling, unapproved penetrations, or water damage from poor maintenance). If a dispute arises, photos and a condition report are your best protection.

How Do Make Good Obligations Work In Practice?

Make good obligations sit alongside your other end‑of‑lease responsibilities, like removing your goods and handing back keys. Here’s how they typically operate in Australian commercial leases.

Typical timing and process

• When they apply: At expiry or earlier termination. Some leases also trigger make good if you exercise a break right.
• Notice and access: Your lease may require notice of intended works and allow landlord access to inspect progress.
• Security: If you don’t complete make good, the landlord may claim against your bank guarantee or cash bond, and may seek additional damages if the costs exceed that security.

Scope and exclusions to look for

• Standard of return: Is it “commencement condition,” “base building,” or a defined list of works? The more specific, the better.
• Fixtures and fit‑out: Who owns them, and must they be removed? Check any landlord approvals for works-they often dictate removal or retention at lease end.
• Fair wear and tear: Is it clearly excluded? Some leases seek to narrow that exclusion-watch for this.
• Cash settlement option: A pre‑agreed amount can give you cost certainty and avoid project risk.

For example, if you’re closing a café and the lease requires full reinstatement, you may need to remove counters and fixed equipment, make safe any plumbing and electrical modifications, repair penetrations, repaint, and recarpet. If you leave it to the landlord, they’ll likely charge their costs plus a margin-so clarity up front matters.

It’s common for informal expectations to creep in during handover. Always cross‑check the written clause. If a landlord’s request goes beyond the documents, you can push back with evidence (like photos and the condition report) or seek a pragmatic cash settlement.

How Do You Plan And Negotiate Make Good?

Good documentation and early negotiation are your best tools. Here’s a practical approach you can use from day one.

Before you sign the lease

• Get a condition report: Record the state of the premises at commencement with photos and a clear written report, signed by both parties. If you can, attach it to your lease or a schedule.
• Define the standard: Replace vague phrases like “to the landlord’s satisfaction” with objective wording (e.g. “return to commencement condition, allowing for fair wear and tear”).
• Limit reinstatement: Negotiate to leave quality built‑ins that add value (e.g. flooring, partitions) and limit major demolition unless strictly required.
• Consider a cash settlement: If you prefer cost certainty, negotiate a fixed or formula‑based amount payable at lease end instead of doing the works.
• Align approvals with lease end: When you obtain landlord approval for a fit‑out, document whether removal will be required later-this avoids surprises at exit.

If you’re comparing offers or negotiating changes, it can be helpful to get a commercial lease review so you know exactly what you’re taking on.

During the term

• Maintain a works register: Keep a simple record of alterations, approvals and certificates, and who owns each item.
• Budget early: Get a high‑level estimate of likely make good costs well before expiry to avoid cash flow surprises.
• Inspect ahead of exit: Do a “pre‑handover” walkthrough several weeks before expiry to agree scope with the landlord (in writing).

At lease end

• Stick to the paper: Use your condition report, approvals and the clause wording to scope works.
• Be practical: If time is tight, propose a cash settlement that reflects realistic costs, evidence and quotes.
• Document handover: Take final photos and a short exit report when you return the keys.

Legal Risks, Enforcement And Disputes

Make good obligations are generally enforced according to the contract wording. The key question in any dispute is: “What do the lease and the evidence say?” That said, there are important legal guardrails to be aware of.

How courts and tribunals approach make good

• Contract first: Tribunals and courts primarily apply the lease as written. If the clause is clear, it will usually be enforced.
• No penalties: A clause that imposes a penalty (an amount out of proportion to protecting the landlord’s legitimate interests) may be unenforceable as a penalty. Liquidated damages tied to a genuine pre‑estimate are more likely to hold.
• Evidence matters: Condition reports, dated photos, approvals and correspondence often decide the outcome.

Retail lease rules and disclosure

State and territory retail leasing laws can affect refurbishment and make good expectations, landlord recoveries and disclosure obligations. The details vary by jurisdiction, so it’s important to check the rules that apply to your premises and industry.

As one example, the Retail Leases Act NSW regulates what landlords can recover as outgoings and requires clear disclosure of certain obligations (including refurbishment) before the lease is entered. If the landlord hasn’t properly disclosed a material obligation, that can influence how it’s enforced. The specifics are technical and differ by state, so getting tailored advice early is sensible.

Unfair contract terms and small businesses

Australia’s unfair contract terms regime under the Australian Consumer Law can apply to standard‑form small business contracts, which may include some commercial leases. If a term creates a significant imbalance, isn’t reasonably necessary to protect legitimate interests, and would cause detriment, a court can declare it void. Whether that regime applies to your lease depends on the circumstances and contract structure-this is another reason to review your make good clause before signing.

Common risk areas for tenants

• Scope creep at exit: Landlord requests exceed the lease wording (e.g. asking for upgrades rather than restoration). Push back using the clause and evidence.
• Missing evidence: No condition report or photos at commencement makes it harder to prove “original condition.”
• Underestimating costs: Full reinstatement can be expensive, particularly where services (plumbing, electrical, mechanical) must be made good.
• Security drawdown: Bonds and guarantees can be called if obligations aren’t met. If you disagree with the claimed amount, act quickly and in writing.

If a dispute arises, options include negotiation, mediation under your lease, or proceedings in the relevant tribunal or court. Early legal input and a well‑prepared evidence pack often lead to a faster, more cost‑effective resolution.

Key Documents And Business Sale Scenarios

Solid paperwork throughout the lease lifecycle helps you control cost and risk-and can smooth a handover if you sell or assign your lease.

Documents that help manage make good

• Commercial Lease Agreement: The core document. Aim for clear, objective make good wording with defined standards and any agreed cash settlement.
• Condition reports (entry and exit): Short, signed reports with date‑stamped photos. These are often decisive evidence.
• Fit‑out and approval records: Keep plans, landlord approvals, compliance certificates and correspondence that confirm ownership and removal obligations.
• Deed of Assignment of Lease: If you transfer the lease, this deed can allocate responsibility for make good between outgoing and incoming tenants. See Deed of Assignment of Lease.
• Lease Surrender Agreement: If you agree to end early, record the make good position and any settlement amount in a formal Lease Surrender Agreement.
• Rent Abatement Agreement: Sometimes incentives or rent abatements are balanced against certain tenant obligations-document these clearly with a Rent Abatement Agreement.

Not every lease will need all of these, but having the right documents-prepared and stored well-can save time, cost and stress at exit.

Buying or selling a business in leased premises

When a business changes hands, make good is a key commercial lever. Decide who is responsible and reflect it in the sale paperwork.

• Allocation of obligations: Will the seller make good before completion, or will the buyer take the premises “as is” and assume responsibility at the end of the term?
• Sale contracts: Document the agreed position in your Business Sale Agreement or Asset Sale Agreement, and ensure the lease documentation aligns.
• Assignment approvals: Landlord consent can take time and may involve conditions-build this into your timeline and conditions precedent.

Make sure the lease, any assignment deed and the sale agreement are consistent on who is doing what, and when. Mismatches between documents are a common source of end‑of‑deal friction.

Key Takeaways

• Make good clauses set the standard for how you must return your premises at lease end; the wording can range from basic repairs to full reinstatement or a cash settlement.
• Fair wear and tear is usually excluded, but damage from neglect or unauthorised works is not-condition reports and photos are your best protection.
• Define and negotiate the make good standard before you sign, align fit‑out approvals with exit obligations, and consider a fixed settlement amount for cost certainty.
• Enforcement turns on the contract and evidence; retail leasing rules and unfair contract terms laws may affect outcomes in some cases, so get advice early.
• Use clear documents-your lease, condition reports, approvals, and where relevant a Deed of Assignment of Lease or Lease Surrender Agreement-to allocate obligations and avoid disputes.
• If you’re unsure about a make good clause or you’re approaching lease expiry, a focused commercial lease review can help you manage risk and budget confidently.

If you’d like tailored advice about make good obligations in your next commercial lease, or support negotiating your lease, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.