Amidst the dynamic landscape of Australia’s $49.15 billion commercial real estate industry, featuring over a million commercial leases managing the interactions between landlords and tenants, understanding the intricacies of the “make good” provision is pivotal. With tenants seeking to mitigate future disputes and report contingent liabilities (AASB116, AASB137, IFRS16) and landlords striving to safeguard property value, the “make good” provision stands as a significant topic. While intended to safeguard the interests of both parties, these provisions often give rise to a spectrum of complexities that merit comprehensive exploration.

Deciphering the Make Good Provision:

Termed the “make good”, “yield-up” or “reinstatement” clause, the make good provision is a pivotal component woven into commercial lease agreements. It outlines the obligations of tenants concerning the state of the leased property as the lease term concludes. Usually, it mandates that tenants restore the premises to its original condition, as stipulated in the lease or within a Schedule of Condition at lease inception.

Objective and Obstacles:

While the fundamental goal of the make good provision is to facilitate smooth tenant transitions and preserve property value, numerous challenges are tied to its implementation:

  1. Interpretation Hurdles
    Ambiguities often plague make good provisions, fostering varied interpretations of the “original condition.” This lack of clarity can precipitate disagreements and lengthy negotiations between landlords and tenants.
  2. Financial Complexity
    The endeavour of reinstating a commercial space to its initial state can unleash substantial financial ramifications for tenants. These unforeseen expenses necessitate prudent financial planning and resource allocation.
  3. Time and Resource Allocation
    Adhering to the make good provision can be an intricate and time-intensive process. Tenants may be tasked with orchestrating multiple contractors and professionals, diverting focus from core business operations.
  4. Distinguishing Wear and Tear from Damage
    Delineating between ordinary wear and tear and damage caused by tenants can be a nuanced endeavour, often sparking disputes and potential conflicts.
  5. Syncing with Market Trends
    The mandate to reinstate premises to original form might not align with contemporary market trends or tenant and landlord preferences. Commercial space requisites evolve, rendering the concept of “original condition” less viable.
  6. Embracing Sustainability
    In an era inclined toward sustainability, both tenants and landlords might envision eco-friendly upgrades. However, the make good provision could inadvertently discourage environmentally conscious initiatives such as the circular economic considerations.
  7. Compliance Complexity
    Nurturing compliance with local regulations and building codes adds an additional layer of intricacy. Non-compliance can result in legal ramifications.

Tackling Challenges through Collaboration:

Efficaciously addressing the challenges woven into make good provisions entails proactive efforts and effective communication:

  1. Clear Communication
    Lease agreements should detail the anticipated restoration, leaving no room for ambiguity. A Schedule of Condition at lease inception can be signed by both parties, serving as a snapshot for reference.
  2. Adhering to Reporting Norm
    Under AASB116, AASB137, and IFRS16, reporting contingent liabilities, including “make good,” is obligatory. Engaging property professionals aids in understanding these liabilities and providing a ‘reliable estimate’ (IAS 37).
  3. Collaborative Flexibility
    Both parties should collaborate to devise restoration solutions that align with sustainability goals. However, this may be counter to the lease clauses Flexibility and compromise can avert conflicts.
  4. Strategic Preparation
    Tenants should prepare well in advance for the make good process, budgeting for expenses, including hiring an independent consultant for assessment.
  5. Customising Provisions
    Parties can negotiate provision amendments during the term of the lease to align with evolving market dynamics, business needs, and sustainability objectives.
  6. Expert Guidance
    Legal experts and real estate professionals provide invaluable insights into navigating the complexities of make good provisions.

Unlocking a Harmonious Future:

The make good provision’s essence is to facilitate seamless tenant transitions while preserving property value. However, its execution can be intricate. Through independent professional engagement, transparent communication, and mutual understanding these challenges can be mitigated, fostering a harmonious sustainable leasing environment.

Are you prepared to navigate the make good landscape with confidence?

Partner with experts who understand the nuances and complexities, ensuring your journey through commercial leases is both seamless and prosperous. Contact us today to learn more about our “make good” services, please email