If you are in the process of relocating your business you will need to “make good” the premises before you end your lease. If you are planning to lease an industrial property you will also come across the words “make good” in your lease contract and it is important to get a good hold on what that means before signing on the dotted line.
Today, we uncover exactly what obligations the ‘Make Good’ clause refers to and what it means for industrial tenants and landlords.
What does ‘Make Good’ mean?
The ‘make good’ clause is one of the standard inclusions in an industrial property lease, requiring tenants to return the property to its original state at the end of the lease term, remove its property and leave the premises clean and tidy. Make good clauses are generally seen in agreements where the tenants lease the property as a shell or intend to change an existing fit-out. As these clauses are often quite vague and worded ambiguously, at uTenant we come across a lot of cases where ‘make good’ obligations are not well understood by tenants.
Non-retail commercial leasing (office and industrial leases) is subject to less regulation than residential leasing in Australia, meaning industrial tenants and landlords are left to agree arrangements such as make good provisions between themselves.
What happens if a tenant doesn’t ‘make good’?
If a tenant breaches the make good obligations in the lease agreement, the landlord may be able to sue the tenant for any loss they have suffered as a result of the tenant’s failure and/or keep the tenant’s security deposit or bank guarantee.
How to make good at the end of your lease
If you are a tenant who is about to finish up your lease the first thing you need to do is check your lease agreement.
The ‘make good’ clause commonly covers items such as:
- the removal and repair of partitions, fixtures or fittings such as shelves, joinery, and installations
- the removal of racking and floor bolts
- the removal of plant and equipment
- powerpoints and lighting
- floor and ceiling finishes/coverings
- computer room/data centre
- painted walls
- air conditioning/heating systems
- removal of site rubbish
- any specific tentant engaged alterations to the property
With most industrial leases lasting five years or more, the tenant is usually required to repaint the walls and replace floor coverings.No matter what your lease agreement states you should make sure that the property is clean and tidy, and that your have repaired any damage caused when you hand back the keys.
It’s a good idea to make a list of the changes you have made to the property first by doing a walk-thru of the property and taking note of everything you have changed or damaged. You should have photos (which you took when you first began the lease) or a formal ‘Condition Report’ which you can use to compare the current state of the property to the condition it was originally in.
Once you have made your list speak to your landlord before doing any work on the property. In some cases the landlord may be happy for changes that you have made to the property to remain. Some landlords may request a cash settlement in lieu of make good. You should put together a budget for the make good works yourself, that way you will know if the landlord’s make good settlement figure is appropriate.
‘Make good’ obligations need to be clear right from the start
For both tenants and landlords it is important that make good arrangements are agreed upon prior to the commencement of the lease and that items in the make good clause are documented and photographed in order to minimise any disagreements and cost when the lease comes to an end.
At uTenant, we recommend procuring an independent condition report prior to commencement which is provide to and agreed on by both landlord and tenant.
It’s important that both tenants and landlords seek professional advice before entering into a lease agreement so misunderstandings are avoided when the lease expires. It is a good idea to have a lawyer review the terms of your industrial property lease prior to signing the agreement. For more advice on industrial property leasing contact our Customer Service team today.