What does a make good clause mean in a commercial lease?

It is the part of the lease that says what condition you have to leave the premises in when you move out. Depending on the wording, that can mean anything from a clean and tidy handover to stripping out your fitout and rebuilding the space back to a bare shell.

How much can make good cost a tenant?

It varies with the size and fitout, but a full strip out and reinstatement on a fitted office or shop can run into tens of thousands of dollars. The cost is driven by what the clause requires, which is why the wording matters more than most tenants realise.

Can a make good obligation be negotiated?

Yes. You can cap it, define the exact end condition with photos taken at the start, agree that certain works stay, or replace the obligation with a fixed payment. The time to do this is before you sign, not when you are trying to leave.

What is a payment in lieu of make good?

Instead of carrying out the works, the tenant pays the landlord an agreed sum and walks away. It suits a landlord who plans to refit the space for the next tenant anyway, and it gives the tenant a known number instead of an open ended building job.

Make Good Clauses in Commercial Leases, Explained

A make good clause is the quietest line in a commercial lease and one of the most expensive. Here is what it actually means, what it can cost you, and how to take the risk out of it before you sign.

Most people sign a lease focused on the rent and the term. The make good clause sits near the back, written in a way that sounds harmless, and nobody thinks about it again until they are trying to leave. That is the wrong order. By the time you hand back the keys, the clause is fixed and your bargaining power is gone.

So deal with it now, while you still can.

What "make good" actually means

It is the part of the lease that sets out the condition you have to return the premises in at the end of the term. Simple idea. The cost lives in the detail, because "make good" can mean very different things depending on the wording.

Three versions show up most often:

Clean and tidy. You hand the space back in good condition, fair wear and tear aside. The cheapest outcome for a tenant.
Back to the condition at the start. You return the premises to how they were on day one. If you took an empty shell and fitted it out, you may have to rip the fitout out again.
Back to base building, or to a shell. The most demanding version. Strip out everything, remove partitions, patch the ceiling, cap services, repaint. This is where the big numbers come from.

The wording is the whole game. "Good repair" and "the condition the premises were in at the commencement date" can be tens of thousands of dollars apart on the same shop. Read it as a number, not as legal furniture.

Why it costs so much

A full strip out is a building job. Demolition, waste removal, trades, making good the ceiling and floor, repainting, and often a fresh certificate or sign off before the landlord accepts the space back. On a fitted office or a food premises, that is real money, and it lands right when you are also paying to fit out your new place.

It gets worse when the clause is vague. A landlord with an open ended make good obligation and no agreed starting condition has every reason to ask for more, not less. You end up arguing about what the space looked like years ago, usually without photos, usually from a weaker position.

How to take the risk out, before you sign

This is the part that matters. A make good clause is negotiable, and the cheapest time to fix it is the day you are still deciding whether to sign at all. A few moves that work:

Pin down the end condition. Define exactly what you have to do, in plain words, so there is nothing to argue about later.
Take a condition report at the start. Photos and a dated schedule of the premises on day one. This single step ends most make good disputes before they begin, because everyone can see what "the original condition" was.
Agree what stays. If your fitout improves the space and the next tenant could use it, get the landlord to agree it stays. No removal, no cost.
Cap it. Put a dollar ceiling on your make good liability so you know the worst case.
Offer a payment in lieu. A fixed sum instead of doing the works. Landlords who plan to refit for the next tenant often prefer the cash, and you swap an open ended building job for a known number.

If you are the landlord

The mirror image applies. A clear make good clause with an agreed starting condition protects you far better than a broad one that sounds tough but is hard to enforce. Vague clauses invite arguments, and arguments at the end of a lease delay your next tenant. Define the obligation, keep the condition report, and you will recover the space in a state you can actually re-let.

The short version

Make good is not a formality. It is a cost you agree to years before you pay it, usually without reading it as a cost at all. Treat the clause as a number, define the end condition, photograph the start, and decide whether a capped figure or a payment in lieu serves you better. Do that at signing and you remove one of the nastiest surprises in commercial leasing.

Make good clauses, explained