How to make good when your commercial lease expires

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Table of Contents

• Note any changes
• Communicate with landlord
• Cleanliness
• Conclusion

• Are you considering moving your business to another location?
• Will you be ending your lease as a result?

If the answer is yes, you will be required to “make good” the premises before you hand the keys back to the landlord. Make good is a clause that appears in most commercial lease agreements, which requires tenants to make sure that the property is returned to the landlord in the state in which it was given to the tenant. In general, these clauses feature in commercial leases where the tenant takes out a lease for the entire building or plans to modify a fit-out that is already in place.

There are some misunderstandings surrounding make good provisions, as much of the time they are not clearly worded and can be included in a commercial lease without being carefully considered. Even if your lease agreement does not include a make good clause, the landlord may rely on the principles of common law in taking legal action if the premises are not returned in, at the very least, the state in which it was received.

Check the terms of the lease agreement

Make good clauses are sometimes drafted in a very clear and unambiguous manner but sometimes they are full of exceptions and exclusions. The best practice is to have your leasing lawyer review the terms before you sign the agreement, or, better yet, draft them from scratch so that they are reasonable and tailored to your particular circumstances and for the particular premises.

Note any changes

Write a list of any changes you make to the premises by doing a walk through and listing any modifications you have made or intend to make. These modifications or additions may include the installation of any of the following:

• Heating or Air conditioning;
• Blinds and Drapes;
• Flooring;
• Fittings;
• Partition walls;
• Electrical outlets/lights; and
• Signage.

Communicate with landlord

After having recorded all of the changes you have made, you will need to consult with your landlord to determine his or her requirements. Depending on the landlord’s view, the changes might be seen as improvements to the property, in which case you will not have to make good those changes – meaning you can save money at make good!

Instead of make good, some owners prefer cash settlements. This is especially the case when the new tenants already have their own plans of refurbishing the premises or if a redevelopment of the property is planned.

Another option for making good at the end of your commercial lease would be to negotiate a make good side deed, which is usually more risky for the departing tenant. In most cases, a make good side deed will need a building condition report.

Cleanliness

Even if your lease does not specifically require the premises be returned in a clean and tidy state, it is always best practice to do so. Returning the property in a clean state typically includes completing any maintenance and repairs, that you were obliged to complete during the lease term and requires the tenant to restore the premises to its original state. These requirements are often listed in the commercial lease.

Conclusion

Make good provisions are important if the landlord wishes to restore the property to a certain condition after the lease has expired. For assistance in reviewing or drafting these provisions, contact LegalVision on 1300 544 755.