Make good clauses are some of the most important terms in a commercial lease. A make good clause specifies the tenant’s responsibilities for the leased property before returning it to the landlord. If a tenant doesn’t understand their make good obligations, it can cause problems when the commercial lease ends.
Make good commercial lease clauses
Typically, a commercial lease contains a make good clause. It requires the tenant to restore the property to its original state at the end of the lease. The make good clause may also oblige the tenant to restore the property to its condition after fit-out completion.
A condition report is often prepared to determine the condition of the base building standard. An agent will prepare the report at the commencement of the lease.
A make-good clause protects the landlord from paying for repairs caused by tenant negligence or property use. A make good clause ensures that the tenant must return the premises to their original condition. This makes it easier to find a new tenant.
Make good clauses are negotiable. If a commercial lease includes an unfair clause, a tenant can seek to negotiate.
Reinstatement before the end of the lease
The make good obligation usually begins toward the end of the lease term. In other words, you will only return your space to its original condition or as described in the lease. Therefore, you are responsible for any repairs and/or replacements required to bring it back to that standard.
If a landlord has signed an agreement with a tenant to vacate by a certain date, a tenant’s make good obligations may be in the form of a cash payment or credit note from the landlord. If the existing tenant wants to stay longer than agreed upon or if they want an extension on the lease (which is called “renegotiation”), then this may affect how much money will be owed as part of the make good obligations.
Reinstating the premises to their original state
Reinstatement of the premises involves returning them to their original state before the lease began. A tenant should leave a property in a clean and tidy condition.
Landlords need to know their rights and limits when it comes to restoring premises after a commercial lease ends. Landlords should consult a commercial lease lawyer before making significant changes, such as replacing carpets with hardwood floors. Changing something without permission could be seen as conversion, which is taking someone else’s property unlawfully.
Make good means different things to different people
There may be some instances where reinstating a premise means something different between landlords and tenants. For example, if the tenant has damaged the premises and needs to repair or replace a portion of it. In this case, it is up to the landlord to repair or replace that damaged portion (and then bill the tenant for their costs).
The tenant must fix any damaged property before returning control of the space to the landlord.
Both sides must read the lease agreement to avoid confusion about what happens when the tenant moves out. This is especially important to avoid unexpected bills when a tenant has to leave the premises.
Clear make good expectations
Make good clauses are common in commercial leases. They provide a way for the landlord to recoup losses from any tenant. They can also help landlords find a new tenant if the tenant is no longer able to meet their financial obligations.
In many cases, tenants negotiate make good clauses at the time of signing a lease agreement. They may also included in standard form contracts for commercial leases. However, individual landowners may have their unique expectations regarding these obligations as well.
Agreement for lease
We recommend including the make good responsibilities in an agreement for lease, even if it’s just a brief explanation. The agreement for lease outlines the main terms that will be included in the formal lease document at a high level.
Formal commercial lease
A formal lease agreement will describe the make good obligations. If you have signed an agreement for lease, the formal lease should reflect what you described in the agreement for lease.
6 things every tenant should know before signing a commercial lease
Here are six things every tenant should know before signing a commercial lease when it comes to made good clauses:
- The make good clause must clearly describe the tenant’s obligations at the end of the lease.
- Will improvements need to be removed
- Would the tenant prefer the landlord to make good and the tenant pay cash instead
- Would the tenant accept paying a cash amount, even if the landlord chooses not to proceed to change the premises
- If there is anything in the lease that is unclear or confusing, ask for clarification before signing it
Do not sign if something in the commercial lease says something different than what was discussed between you and the landlord. Get legal advice from a commercial lease lawyer first.
Read the lease before signing
It is essential to get a commercial lease agreement in writing when you are leasing commercial property.
Make sure that all terms and conditions are spelled out before signing any documents. This will help prevent confusion, costly legal fees and potential lawsuits later on.
As you can see, understanding your make good obligations is crucial for protecting your rights and ensuring a smooth end to your lease.
Make sure that all relevant details in the lease have been considered carefully beforehand. This will ensure that you don’t run into any surprises at the end of its term—especially since some leases might not even have an explicit make good clause!