Many NSW business owners focus on rent, outgoings, and lease incentives when negotiating commercial premises. Yet one of the most expensive clauses in a commercial lease often receives the least attention: the make good clause. A poorly drafted make good obligation can leave tenants facing substantial end-of-lease costs years after signing the agreement. Whether you’re entering a new lease, planning an exit, or have received a make good demand from your landlord, understanding your obligations is critical. This guide explains how make good clause NSW provisions work, what they typically cost, how to negotiate them, and how to avoid unexpected commercial lease exit costs NSW businesses commonly encounter.
What Is a Make Good Clause in a NSW Commercial Lease?
A make good clause (sometimes called a reinstatement clause) sets out what a tenant must do to restore or return leased premises at the end of a lease.
In simple terms, it determines:
- The condition in which the premises must be returned
- Whether fit-outs must be removed
- Who pays for reinstatement works
- Whether the tenant must compensate the landlord financially
These clauses appear in most commercial and retail leases and can significantly increase the overall commercial lease cost of occupying a property.
While rent and outgoings are paid throughout the lease term, make good obligations often become payable in one large amount at lease expiry.
Why Make Good Clauses Catch NSW Tenants Off Guard
Many tenants underestimate the financial impact of make good obligations.
Common reasons include:
The Clause Is Signed Years Before Lease Expiry
A lease signed today may not end for five, seven, or ten years.
By the time expiry approaches, many tenants have forgotten what obligations they agreed to.
Vague Drafting
Common wording includes phrases such as:
- “Return the premises to original condition”
- “To the landlord’s reasonable satisfaction”
- “Fully reinstate the premises”
These provisions can create uncertainty and disputes.
No Financial Provision Is Made
Unlike rent, many businesses fail to budget for potential end of lease make good cost obligations.
As a result, the expense arrives as an unexpected liability.
The Different Types of Make Good Obligations
Not all make good clauses are the same.
Understanding the scope of your obligations is critical.
Standard Make Good
Typically requires tenants to:
- Repair damage
- Remove rubbish
- Clean the premises
- Address wear beyond fair wear and tear
This is often the least expensive form of reinstatement.
Strip-Out Make Good
Often referred to as returning premises to “base building condition.”
This may require removal of:
- Internal partitions
- Floor coverings
- Signage
- Lighting
- Kitchenettes
- Cabling
This type of commercial lease make good obligation can be extremely costly.
Cosmetic Make Good
Generally includes:
- Repainting
- Cleaning
- Minor repairs
- Replacing damaged finishes
Common in office and retail premises.
Cash Settlement
Some leases allow parties to negotiate a financial settlement instead of undertaking physical works.
This can save time and reduce disputes.
What Make Good Typically Costs — And the Hidden Items Tenants Forget
The true commercial lease cost of a tenancy often only becomes apparent at lease exit.
Actual costs vary significantly depending on location, size, fit-out, and lease wording.
As a broad indication only:
Office Premises
Sydney office strip-outs commonly range from approximately:
- $50-$150+ per square metre
Retail Premises
Retail reinstatement costs can vary substantially depending on:
- Shopfront requirements
- Services
- Fit-out complexity
Industrial Premises
Costs depend on:
- Plant removal
- Structural works
- Equipment decommissioning
No two premises are identical, and costs can vary widely.
Hidden Cost Items Tenants Often Overlook
Many tenants budget only for demolition works while overlooking associated expenses.
Common hidden costs include:
Removal of Partitions
Internal offices, meeting rooms, and walls may need removal.
Mechanical and Electrical Reinstatement
HVAC systems, electrical wiring, and lighting can be expensive to remove or modify.
Ceiling and Floor Finishes
Replacing ceiling tiles, carpets, and floor coverings often adds significant cost.
Signage Removal
External and internal branding must frequently be removed and repaired.
Data and Communications Cabling
Data infrastructure is often forgotten until exit inspections occur.
Kitchenettes and Joinery
Custom-built facilities may require complete removal.
Statutory Compliance Requirements
Some works may trigger compliance obligations and certifications.
Asbestos and Hazardous Materials
Older buildings may require specialist contractors.
Professional Fees
These may include:
- Project managers
- Building consultants
- Surveyors
- Contractors
Dilapidation Reports
Landlords often commission reports identifying defects or reinstatement requirements.
Rent During Make Good
Delays in completing works may result in additional occupancy costs.
Your Legal Position: The Retail Leases Act 1994 (NSW) and Common Law
Several legal principles influence retail lease make good NSW disputes.
Retail Leases Act 1994 (NSW)
For eligible retail leases, the Act regulates various aspects of landlord-tenant relationships, including disclosure obligations.
Disclosure statements may assist tenants in understanding lease obligations before signing.
Common Law Principles
The precise wording of the lease remains critically important.
Courts generally interpret make good obligations according to:
- The lease wording
- Commercial context
- Parties’ intentions
Disputes often arise where clauses are ambiguous or poorly drafted.
Unfair Contract Terms Regime
Recent reforms under the Competition and Consumer Act 2010 (Cth) have expanded protections relating to unfair contract terms.
While application depends on specific circumstances, businesses should carefully review standard-form leases.
NCAT vs Court Proceedings
Retail lease disputes may sometimes be resolved through specialist tribunals or mediation pathways.
More complex non-retail disputes may proceed through the NSW courts.
How to Read and Negotiate a Make Good Clause Before You Sign
The best time to manage make good risk is before entering the lease.
Define “Original Condition”
One of the most important strategies is preparing a detailed photographic condition report.
This should include:
- Walls
- Floors
- Ceilings
- Services
- Existing defects
Without evidence, disputes about original condition become more likely.
Limit the Scope
Seek clarity regarding:
- What must be removed
- What may remain
- What constitutes fair wear and tear
Negotiate a Cost Cap
Some tenants negotiate maximum financial exposure.
This can improve budgeting certainty.
Exclude Approved Fit-Outs
Where landlords approve fit-outs, consider negotiating an exclusion from future reinstatement obligations.
Allow Cash Settlement
Flexibility can reduce disputes and project management burdens.
Confirm GST Treatment
Clarify whether make good payments attract GST.
Managing Make Good During the Lease
Good record keeping can significantly reduce disputes.
Keep Dated Photos
Photograph:
- Initial condition
- Alterations
- Upgrades
- Repairs
Maintain a Fit-Out Register
Record:
- Installation dates
- Approvals
- Contractors
- Costs
Obtain Written Landlord Approval
Never rely on verbal approval for alterations.
Written approval can become critical years later.
Review Obligations Annually
Business circumstances change.
Regular reviews help avoid surprises at lease expiry.
What to Do When You Receive a Make Good Demand at Exit
Receiving a significant make good demand does not automatically mean you must accept it.
Request Details in Writing
Ask the landlord to identify:
- Lease clauses relied upon
- Required works
- Supporting evidence
Obtain Independent Quotes
Do not rely solely on landlord estimates.
Independent quotations often provide valuable leverage.
Challenge Unreasonable Claims
Some demands extend beyond the tenant’s actual obligations.
Legal review may identify excessive or unsupported requirements.
Consider Mediation
The NSW Small Business Commissioner offers dispute resolution services for eligible matters.
Mediation frequently resolves disputes without litigation.
Explore Cash Settlements
Commercially negotiated settlements often provide certainty for both parties.
When to Engage a Commercial Property Lawyer
Legal advice can save substantial costs both before and after lease signing.
You should strongly consider engaging a lawyer when:
- Negotiating a new lease
- Planning major fit-outs
- Assigning a lease
- Preparing for lease expiry
- Responding to a make good demand
- Facing a lease dispute
A commercial property lawyer can assist with:
- Lease review
- Risk assessment
- Make good negotiation
- Dispute resolution
- Mediation
- Litigation where necessary
The cost of early advice is often significantly lower than the cost of an avoidable reinstatement dispute.
Frequently Asked Questions
What is a make good clause in NSW?
A make good clause sets out the tenant’s obligations to repair, restore, reinstate, or otherwise return leased premises at the end of a lease.
How much does commercial lease make good cost?
Costs vary considerably. Office strip-outs in Sydney commonly range from approximately $50-$150+ per square metre, but actual costs depend on the premises and scope of works.
Can I negotiate a make good clause before signing?
Yes. Many aspects of make good obligations are negotiable, including scope, cost caps, exclusions, and cash settlement options.
What if I disagree with a landlord’s make good demand?
You may challenge unreasonable demands, obtain independent quotations, seek mediation, or obtain legal advice regarding your obligations.
Does fair wear and tear need to be repaired?
This depends on the lease wording. Many leases exclude fair wear and tear from make good obligations, but each agreement must be reviewed individually.
Get Your Make Good Clause Reviewed by Dettmanns
A make good clause may be one of the most expensive provisions in your commercial lease, yet it is often overlooked until the lease is ending. Understanding your obligations before signing, and before lease expiry, can prevent costly disputes and unexpected liabilities.
At Dettmann Phair Lawyers, we assist commercial tenants and business owners across NSW with lease reviews, make good negotiations, lease disputes, and end-of-lease strategies.
Need advice about a make good clause?
Contact Dettmann Phair Lawyers today to:
- Book a make good clause review before signing
- Obtain advice on lease exit obligations
- Request a make good demand assessment
- Speak directly with an experienced commercial property lawyer
Early advice can help you minimise risk, reduce costs, and negotiate from a position of strength.
Author
About the Author
Damian Phair, Principal at Dettmann Phair Lawyers, has over 25 years of legal experience across both family and commercial law.
He is highly regarded for his work in complex family law matters, including parenting disputes, property settlements, and financial agreements, where his pragmatic and client-focused approach have helped families resolve sensitive issues with clarity and care.
Additionally, his expertise in commercial law, advising businesses on complex agreements, dispute resolution, and litigation, has delivered protection, compliance and long-term success for our clients. His strategic mindset and depth of knowledge allow him to guide companies through high-stakes negotiations and legal challenges, protecting their interests while supporting growth.
Whether assisting families through personal transitions or businesses navigating commercial complexities, Damian provides clear, practical, and effective legal solutions.
Email:dphair@dettmanns.com | Phone: 02 9412 4500
