Make-Good Obligations in Commercial and Retail Leases: Where Landlords Lose Money and How to Protect Yourself

What “Make Good” Actually Means

A make-good clause requires a tenant to return the premises to the landlord in a specified condition at the end of the lease, often stripped of fitout and repaired to a defined standard. Vague drafting around exactly what standard needs to be met is where most disputes start. For example, if the lease says “as existed at the commencement date” (which many do) without a condition report attached, you have handed yourself a fight later.

Retail Leases Are Not Commercial Leases

Whether the Retail Leases Act 1994 (NSW) applies changes the rules significantly, and landlords often assume it doesn’t when it does.

• The Act applies to leases of retail shops, including many premises outside shopping centres, not just high street storefronts.
• Where it applies, the landlord must provide a make-good condition report and the scope of make-good must be fair and reasonable, not whatever the lease happens to say.
• Retail lease disputes generally go to the NSW Small Business Commissioner for mediation before either party can commence proceedings in NCAT or the courts.
• Pure commercial leases (offices, warehouses, industrial premises) sit outside the Act, so the make-good obligation is almost entirely a creature of contract.

Landlords who assume a lease is “just commercial” because the tenant runs an office, rather than checking the premises and use against the Act’s definitions, are usually the ones caught out.

Where Landlords Lose Money

In our experience, the same handful of issues account for most of the value lost on make-good.

• No condition report at lease start. Without a baseline, it’s nearly impossible to prove what “original condition” actually looked like.
• Services and fitout left ambiguous. Air conditioning, data cabling, partitioning and signage are frequent flashpoints because the lease doesn’t say who removes what (or who owns what).
• No make-good bond or bank guarantee sized to cover the actual cost. A guarantee set at three months’ rent rarely covers a full strip-out and reinstatement.
• Waiting until the last month of the term to raise it. By then there’s no leverage left to negotiate a sensible outcome.

A Common Issue We Encounter: The Silent Assignment

When a lease is assigned partway through the term, the make-good obligation usually transfers to the incoming tenant, but the standard it must meet is still fixed by reference to the original premises condition. We often see landlords lose track of this history, particularly across multiple assignments, and end up unable to prove what the assignee is actually meant to restore. Keep every condition report and fitout approval on file for the life of the lease, not just the current tenancy.

What to Check Before You Sign (Landlords)

• Attach a photographic condition report and, ideally, a schedule of finishes as an annexure to the lease.
• Define make-good standard by reference to that report, not a vague phrase like “original condition.”
• State clearly whether tenant fitout is to be removed or may be left in place, and who owns it if left.
• Size any bank guarantee or bond with the likely make-good cost in mind, not just rent.
• Set a timeframe for a pre-expiry inspection, ideally three to six months before the lease ends, so disputes surface while there’s still room to resolve them.

What to Check Before You Sign (Tenants)

• Ask for the make-good standard in writing before you commit, not as an afterthought during negotiation.
• Photograph the premises yourself on handover and keep dated records throughout the term.
• Clarify whether the landlord actually wants the fitout removed. Ripping out a functional fitout the landlord would rather keep is money wasted on both sides.
• If you’re taking an assignment of an existing lease, get a copy of the original condition report before you sign anything.

Queensland and Victoria: A Quick Note

Make-good principles are broadly similar across Australia, but the detail differs.

• In Queensland, the Retail Shop Leases Act 1994 governs retail premises, and the new Property Law Act 2023 (Qld) has introduced implied standard lease terms that commercial landlords and tenants need to check against their existing precedents.
• In Victoria, the Retail Leases Act 2003 (Vic) applies a similar fair and reasonable standard to retail make-good, administered with reference to the Victorian Small Business Commission.
• If you hold property across states, don’t assume a make-good clause that works in NSW will translate cleanly. Get it checked jurisdiction by jurisdiction.

Practical Takeaways

• A make-good clause is only as good as the condition report sitting behind it.
• Retail leases carry statutory protections that pure commercial leases don’t. Check which one you actually have.
• Bonds and guarantees should be sized to the real cost of reinstatement, not a round number picked at lease signing.
• Raise make-good expectations early, ideally months before expiry, not in the final week.
• Keep records for the whole life of the lease, including through any assignment.

Get in Touch

Make-good disputes are far easier to prevent than to fix after the tenant has already left. If you’re negotiating a new lease or taking over a new lease when buying a commercial property, we can help you work through it before it becomes expensive. As a commercial property law firm based in Sydney and working across Australia, Jaide Law offers a complimentary property call to talk through your situation. Get in touch to arrange yours.

Disclaimer — We know most of you get this, but just to be clear, the information above is general and doesn’t consider your unique situation. Please don’t rely on it as a substitute for professional advice. We strongly encourage you to seek appropriate guidance for your specific needs.