Make good, and what it costs to leave
The clause nobody reads until the last year of the lease, and the one that decides whether you leave with money or write a cheque on the way out.
The short answer
Every commercial lease has a clause about the condition you leave the premises in. Almost nobody negotiates it, because at signing it is five or ten years away and there is a more interesting argument to have about rent. It then arrives at the worst possible moment, when you are trying to fund a move.
Key points
- Make good is negotiated at heads of agreement, not at the end. By then you have no leverage.
- A clinical fitout is expensive to remove: services penetrations, lead lining and slab work.
- Photograph and schedule the premises on day one. Without that record, the argument is unwinnable.
- Most disputes settle in cash. Knowing the real cost of the works is what sets that number.
Every commercial lease has a clause about the condition you leave the premises in. Almost nobody negotiates it, because at signing it is five or ten years away and there is a more interesting argument to have about rent. It then arrives at the worst possible moment, when you are trying to fund a move.
What the clause actually says
Make good clauses come in two broad shapes, and the difference between them is the single biggest number in this article.
Return to base building. You strip your fitout and hand back the shell you were given: floor, ceiling, services capped, walls made good. This is the reasonable version and the one to push for.
Return to original condition. Sounds identical. It is not. Depending on how it is drafted, this can mean the condition the premises were in at the start of the lease including anything a previous tenant left, or worse, a condition described in a schedule you never checked. Practices have been asked to install ceilings and floor coverings that were not there when they arrived.
There is often a third element buried in the same clause: an obligation to remove any tenant works and reinstate any alterations, which in a clinical tenancy is where the money is.
Why a clinical fitout is expensive to remove
An office make good is carpet, partitions and a repaint. A practice is a services job in reverse, and the cost sits in things a general commercial tenant never has.
- Slab penetrations. Dental surgeries run suction, compressed air, water and waste under the slab. Filling and making good core holes is structural work, not patching.
- Lead lining. An imaging room has shielded walls and often a shielded door. Removing lead is a controlled waste stream, not a skip.
- Mechanical. Supplementary plant added for consulting rooms or a procedure room usually has to come out, including any penetration through the roof or facade.
- Hydraulic. Every basin, steriliser feed, slop hopper and floor waste is a connection that has to be capped off properly.
- Fire. Sprinkler heads and detectors moved to suit your ceiling grid have to be returned to a compliant layout, and that gets certified.
None of this is exotic. All of it is trade work with certification attached, and it is why a clinical make good routinely runs well above what a tenant has quietly assumed.
The record you should make on day one
The most valuable thing you can do about make good costs nothing and takes an afternoon, and it happens at the start of the lease rather than the end.
Photograph the premises comprehensively before you touch them. Every wall, the ceiling, the floor, the state of the services, existing damage, what the previous tenant left behind. Date the images. Then write a short schedule of condition describing what you photographed, and get the landlord or agent to acknowledge it in writing as an annexure to the lease.
Without that record, a make good negotiation in year seven is one party’s recollection against another’s, and the party holding the bank guarantee tends to win. With it, the conversation is short.
What to negotiate, and when
All of this belongs in heads of agreement, before lawyers are engaged and while the landlord still wants you as a tenant. Once the lease is drafted you are asking for a concession rather than setting a term.
Worth asking for, in rough order of value:
- Base building, not original condition, with the base building described in a schedule rather than left to interpretation.
- The fitout stays. A landlord reletting to another practice may want the rooms. Get the right to leave the fitout in place at your election, not theirs.
- A capped sum. If make good cannot be removed, a dollar cap converts an unknown into a number you can provision for.
- No obligation to remove services upgrades that improved the premises, such as added mechanical capacity or an upgraded switchboard.
How these usually end
In practice most make good obligations are settled in cash rather than performed. The landlord has a new tenant with their own plans, and stripping a tenancy back only to rebuild it suits nobody. What is really being negotiated is a payment.
Which is why knowing the genuine cost of the works matters even if you never do them. If your builder has priced the strip out properly, you know whether the number being asked is fair. If you have not, you are negotiating against a figure the landlord’s consultant produced and you have nothing to test it with.
Get that priced in the second last year of the lease rather than the last. It gives you time to either do the work in a planned way or argue the number down, and it stops the cost landing in the same quarter as your new fitout.
Sources and further reading
The Retail Leases Act framework and ATO guidance on capital works, read alongside how clinical strip outs are actually priced.
The Retail Leases Act 1994 framework and the disclosure a landlord owes a tenant, including on make good and outgoings. Every state has its own equivalent.
Capital works deductions and depreciating assets, which is how a fitout and a landlord contribution are actually treated at tax time.
The National Construction Code: building classification, fire separation, egress, sanitary provisions and access.
Questions
Can I be made to remove my fitout at the end of the lease?
It depends entirely on the wording. A clause requiring return to base building means stripping tenant works and handing back the shell. Some leases also let the landlord elect whether the fitout stays or goes, which leaves you exposed. Negotiate the right to leave it in place at your election, particularly if the premises would suit another practice.
How much does make good cost on a medical or dental practice?
More than an office, because the cost is in services rather than finishes: capping hydraulics, removing supplementary mechanical plant and its penetrations, filling slab penetrations from dental services, removing lead lining as controlled waste, and returning the fire services to a certified layout. Have it priced properly in the second last year rather than guessing.
What is the difference between base building and original condition?
Base building means the shell as the landlord provides it, which is the reasonable standard. Original condition can be read as the state of the premises when your lease began, including anything a previous tenant left, and has been used to ask tenants to install ceilings and floor coverings that were never theirs. Ask for base building, described in a schedule.
Do I have to do the work, or can I pay instead?
Most make good obligations settle as a cash payment, because a landlord with an incoming tenant rarely wants the tenancy stripped and rebuilt. That makes it a negotiation, and the way to win it is to know what the works genuinely cost so you can test the figure you are given.
When should make good be negotiated?
At heads of agreement, before the lease is drafted. That is the only point where you are setting a commercial term rather than requesting a concession, and it is when the landlord most wants you in the building.
Send us the floor plan
A site assessment tells you what the tenancy can take and what it will cost to get there, ideally before you have signed for it.