In Australian commercial leasing, one of the most frequently disputed issues is the condition in which a tenant must leave the premises at the end of the lease. These obligations are governed by the make good clause – a provision that can carry significant financial consequences if misunderstood or poorly drafted.
This article, written by our commercial lease lawyer, outlines the current Australian position on make good obligations, drawing on recent case law, key statutory provisions and best-practice drafting, to help landlords and tenants understand, negotiate and comply with their make good commitments.
Key Takeaways
Make good obligations arise from the lease terms, overlaid with common law and statutory restrictions – particularly for retail leases.
Vague phrases such as “original condition” or “reasonable wear and tear excepted” are major sources of dispute.
In retail leases, landlords must disclose make good obligations in the disclosure statement. Undisclosed obligations may not be enforceable.
Some leases allow tenants to pay a sum instead of physically performing reinstatement, but this must be contractually agreed.
Entry and exit condition reports with photographic schedules are essential to avoid disputes.
What Does “Make Good” Actually Mean?
A make good clause sets out what the tenant must do to restore or repair the leased premises before handing them back to the landlord. Common obligations fall into three categories:
Category | Common Wording | Practical Effect |
Redecoration | “Repaint, re-carpet and clean to a good commercial standard” | Cosmetic refresh to facilitate re-letting |
Reinstatement | “Reinstate the premises to the condition at commencement” | Remove fit-out, partitions, signage, patch and paint |
Repair | “Repair all damage, fair wear and tear excepted” | Fix damage attributable to the tenant’s use or negligence |
The parties can agree a hybrid approach (e.g. redecoration plus removal of the fit-out).
Not all make-good clauses are created equal – some can trigger major end-of-lease liabilities. Learn more about red flags to look for in commercial leases before you sign.
If you’re buying a business, learn more in our article 10 Things to Consider Before Buying a Business.
Statutory Safeguards (Retail Leases)
Statutory protections for tenants differ across jurisdictions and typically apply only to retail premises.
New South Wales
Retail Leases Act 1994 (NSW) s 41: Landlord cannot recover undisclosed make good outgoings or capital costs.
Victoria
Retail Leases Act 2003 (Vic) s 3 & Disclosure Regime: Landlord must specify any make good requirement in the disclosure statement; failure may give rise to compensation or refusal to perform.
Queensland
Retail Shop Leases Act 1994 (Qld) s 53: Prohibits landlords from charging tenants for capital improvements unless specifically agreed.
Similar protections exist in other States and Territories, though wording varies.
Note that statutory limitations under the Retail Leases Acts generally apply only to leases of retail premises and not to office or industrial leases. Non-retail commercial leases (e.g., offices or warehouses) are generally governed by common law and contract alone.
Drafting & Negotiation Tips for Make Good Clauses
We’ve outlined some helpful tips below. Check out our handy article on other tips for negotiating a commercial lease to learn more.
Specify the Benchmark Condition
- Incorporate or attach an Entry Condition Report with dated photographs.
- State whether “fair wear and tear” is excluded or included and define the term.
Clarify Fit-Out Obligations Up Front
Specify whether the tenant must remove the entire fit-out or only non-structural components.
Identify which fixtures remain the landlord’s property.
Consider a Cash Settlement Option
- If permitted, include a mechanism for valuation by a jointly appointed quantity surveyor.
- Define when and how the payment is to be made.
Note: Tenants cannot unilaterally opt for a cash payment unless the lease expressly allows it.
Align with Insurance & Maintenance Obligations
Exclude liability for damage caused by insured events or covered by landlord’s building insurance.
Avoid duplication with general repair obligations.
Common Make Good Pitfalls & How to Avoid Them
Common Pitfall | How to Avoid |
Ambiguous language in the make good clause | Use specific, measurable standards (e.g. “paint finish equivalent to two-coat Dulux”). |
Missing disclosure | Ensure all make good obligations are stated in the disclosure statement for Retail Leases. |
Incomplete or missing condition report | Conduct thorough condition reports (with dated photos) at entry and exit. Keep your own copies throughout the tenancy. |
Under-estimating cost to rectify | Obtain early cost estimates to inform budgeting or negotiate a cash settlement. |
Practical Timeline for Tenants
6–12 months pre-expiry
- Review lease terms, confirm make good obligations, and get legal advice if unclear.
- Commission a dilapidation report; obtain repair estimates.
3–6 months pre-expiry
- Decide whether to perform the works or negotiate cash settlement.
1 month pre-expiry
- Commence works (if physical make good chosen). Arrange access and plan for clean-up.
Handover day
- Conduct joint exit inspection and sign the Final Condition Report.
Post handover
- If applicable, settle final costs or reimburse landlord for incomplete works.
Enforcement and Remedy Options for Landlords
If a tenant fails to comply:
Self-help: The landlord performs the work and recovers the cost as a debt. Damages are typically assessed by reference to “reasonable cost of works”.
Security call: The landlord may draw on any bank guarantee or bond.
Litigation: Courts typically award damages, not specific performance.
Speak to one of our commercial lease lawyers today to see how we can help you.
Frequently Asked Questions
Can a landlord force a tenant to pay for new capital works under a make good clause?
Not in retail leases unless expressly disclosed and agreed (see s 53 RSLA Qld; s 41 RLA NSW).
Is “fair wear and tear” always excluded from make good?
No. Many leases exclude liability for fair wear and tear, but the parties can contract out by clear wording
What happens if the landlord decides to demolish after lease expiry - does the tenant still make good?
A well-drafted lease will allow a cash settlement formula; otherwise, the tenant may still be liable unless the clause expressly links make good to the landlord’s future works.
Are condition reports mandatory?
Not under general property law, but they are strongly recommended and sometimes required by retail leasing regulations in certain States.
Can make good costs exceed the security bond?
Yes. The landlord can sue for the balance, and the security is only partial protection.
Make good clauses in Australian commercial leases: what tenants & landlords need to know about obligations, law, pitfalls & negotiation tips.
