Commercial Lease Make-Good Obligations: Planning for the Future Cost
Commercial lease make-good obligations can turn a future move into a significant cash event, so the scope should be understood before the fit-out begins.
Make-good describes the work or payment required when occupation ends. It may involve removing fit-out, reinstating services, repairing damage, redecorating or returning the premises to an agreed condition.
The actual obligation comes from the lease and related approvals, not from a generic industry rule.
Commercial lease make-good obligations: the short answer
Document the condition at commencement.
Clarify ownership and removal of every material fit-out item.
Estimate works, professional fees and rent during reinstatement.
Review and fund the exposure throughout the lease.
Define the contractual obligation
A clause might require restoration to the original condition, a stated base-building standard or another agreed outcome. It may distinguish fair wear and tear from damage and address landlord fixtures separately.
A lawyer should identify the trigger, scope, timing and consequences of incomplete work. Broad or inconsistent wording should be resolved before commitment.
Record the starting condition
Photographs, plans, service reports and a signed condition schedule help show what existed before the tenant's work. Record defects and landlord works. Without reliable evidence, parties may disagree about what must be removed or repaired years later. Keep approvals and drawings for every subsequent alteration.
Understand fit-out ownership
Identify landlord-owned fixtures, tenant assets, financed equipment and items that may remain with consent. Removing fixed services can require specialist trades, approvals and testing.
Some apparently valuable improvements may still need to be demolished. Confirm responsibility for hazardous material, hidden damage and compliance discovered during removal.
Estimate and provision for cost
Obtain specialist estimates where exposure could be material. Include demolition, trades, waste, consultants, certificates, cleaning and rent while works continue. An accounting provision does not create cash, so management may also need a reserve, facility capacity or staged plan.
Update estimates after major alterations, option exercises or construction-price changes.
Plan the exit early
Begin discussions well before expiry. The landlord may prefer cash settlement, partial retention of fit-out or different work, but any variation should be documented. Coordinate trading cessation, stock removal, contractor access and final inspection.
Delayed completion can create additional rent or prevent timely release of security.
Questions to ask before committing
What evidence supports the rent, cost and revenue assumptions?
Which approvals, consents, notices and security must be in place?
What changes under a delayed-opening, weaker-sales or early-exit scenario?
Which matters require legal, accounting, tax, valuation or technical advice?
Frequently asked questions
Can make-good be negotiated?
It may be a commercial term, subject to the landlord, lease and applicable law.
Can the landlord accept money instead of works?
Possibly, if both parties agree and the amount and release are documented.
Does the bank guarantee remain until completion?
It may. Check the lease and release process rather than assuming expiry on the last trading day.
Who should estimate the cost?
Depending on complexity, a builder, quantity surveyor or specialist consultant may be appropriate.
Illustrative make-good exposure
A tenant may install partitions, cabling, signage and specialised services. Years later, removing those items can also require ceiling repairs, electrical certification, repainting and waste disposal while rent continues.
The original installation price is not a reliable estimate of removal cost. Early documentation and periodic estimates help the business recognise the exposure before the final months of the lease.
How to maintain the records
Keep the commencement condition report, approved plans, landlord consents, warranties, photographs and contractor certificates in one premises file. Add every later alteration. Record which items are landlord property, tenant assets or financed equipment. These documents assist advisers and contractors in defining the work and may reduce disputes about whether a condition existed before occupation.
Funding and timing the exit
Decide whether reserves will be accumulated, facility capacity retained or works staged before expiry. Start obtaining quotes while contractors and landlord representatives still have time to inspect.
Coordinate stock clearance and decommissioning with trading needs. If cash settlement is proposed, obtain sufficient detail to understand what obligations are released and ensure security is returned only after the documented release takes effect.
Conclusion
Make-good is easier to manage when it is treated as a lifecycle cost of the premises rather than an unexpected problem at exit.
Considering Commercial Premises?
Discuss how the premises commitment and proposed finance could be assessed together.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
