Make good commercial lease obligations in Western Australia are set entirely by the lease. The Commercial Tenancy (Retail Shops) Agreements Act 1985 says nothing about make good, redecoration or restoring premises at the end of a term, and the Small Business Development Corporation’s own guidance confirms it is governed by the make good clause rather than by the Act. Whatever your lease says is what you owe, and most tenants read that clause properly for the first time about six weeks before they have to comply with it.
What make good actually means
Returning the premises to an agreed condition at the end of the lease. The argument is always about which condition.
There are two common versions and the gap between them is enormous.
Return the premises to the condition they were in at the commencement of the lease, fair wear and tear excepted. If you took the space with a fitout in it, that fitout stays.
Return the premises to base building, or to a bare shell. Strip out the fitout, the partitions, the ceilings, the services you added, make good the floor and walls, and hand back an empty space. Even where the tenant inherited the fitout from the last occupant.
A tenant who assumed the first and signed the second is looking at a cost that can run well beyond their bank guarantee.
Read the clause before you sign, not before you leave
Make good is negotiable at the start of a lease and almost never negotiable at the end of one. At the start you have something the landlord wants. At the end you have a deadline.
The points worth negotiating are the standard itself, whether any of the existing fitout can stay, whether the obligation is capped at an agreed sum, whether the landlord can elect to take the fitout instead, and what happens if the landlord intends to refit the space for the next tenant anyway.
That last one is worth pressing. If the incoming tenant is going to strip the space regardless, a full make good is money spent demolishing something that was going to be demolished. Landlords will often accept a cash settlement instead, and both sides are better off.
The document that decides the argument
The condition of the premises at the start of the term, recorded properly. Photographs, dated, room by room, agreed by both parties and attached to the lease.
Without it, an argument at the end of a five year term is one party’s memory against the other’s. With it, the standard is a matter of looking at the pictures.
If you are taking premises and there is no such record, make one and send it to the landlord in writing before you start trading. It costs an hour and it is the cheapest insurance in a commercial lease.
Timing catches people out
Make good usually has to be completed before the term ends, not after it. A tenant still stripping out in the first week of the new month may be liable for holding over, which can be expensive and is the sort of detail that only comes up once it is too late.
Work backwards. Get quotes at least three months out, agree the scope with the landlord in writing, and book the trades.
From the landlord side
Make good is worth settling early rather than enforcing late. A tenant who is leaving has little incentive to do a careful job, and a contested make good at expiry delays the re letting of the space, which usually costs more than the work was worth.
The better outcome in most cases is an agreed scope, or an agreed sum, settled a few months before expiry while there is still goodwill and the bank guarantee is still in place.
The short version
The Act is silent. The lease decides. There is a large difference between reinstating to the condition at commencement and stripping back to base building, and that difference is decided when the lease is signed. Record the condition at the start. Deal with make good three months out, not three weeks.
If you own commercial property in Perth with a lease approaching expiry, the make good position is one of the few things that is much cheaper to sort early. Our commercial property management service tracks expiries and negotiates make good before the tenant has one foot out the door, which is the only point at which it goes smoothly.
Guidance on make good is published by the Small Business Development Corporation. This article is general information and not advice.
