How Do I Resolve a Lease Dispute Over a Make Good Obligation?

A make good obligation in a lease requires a tenant to return the property to their landlord in a similar condition to when they arrived. But disputes centred around this obligation frequently arise between the landlord and tenant. For instance, a tenant mistakenly believes they have to return the property to the landlord in the same or similar condition, when in fact, the lease requires they strip the premises back to a bare shell for a new tenant. Below, we set out what steps parties can take to resolve a make good dispute.

What Does the Lease Say?

Most commercial leases contain a dispute resolution clause that may require parties to negotiate in good faith or attend a mediation, conciliation or arbitration. These methods are less costly and time-consuming than litigation.  

If parties to a commercial lease cannot reach an agreement, they may need to resolve their dispute in court. For a retail lease, the relevant retail leasing legislation in each state sets out the process.

State-by-State Retail Acts

Appoint a Quantity Surveyor

Parties may involve a quantity surveyor when they cannot agree on the amount of compensation payable or make good required. Quantity surveyors will assess realistic replacement, removal and fit-out costs. 

Under the retail legislation in each state, parties can make an application to the Australian Institute of Quantity Surveyors (AIQs) to appoint a surveyor. Both the landlord and tenant share the costs equally of appointing a surveyor and must do so before any work beginning. For example, if your make good provision required a tenant to strip back the premises to a bare shell and the tenant failed to do so, a quantity surveyor would assess the cost of removing the fit-out before commencing that work.

What Happens If a Tenant Does Not Make Good the Property?

If a tenant fails to meet their make good obligations, the landlord will notify the tenant of their intention to complete the work and then pass on the costs. Check your lease as this will typically regulate the time frames surrounding this process.

Parties may also reach cash settlements if a tenant does not fulfil their obligation. For instance, a tenant may negotiate a cash settlement with the landlord instead of making good the property.

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If you have any questions about your make good obligations or need assistance reviewing your lease agreement, get in touch with our commercial leasing lawyers on 1300 544 755.