Making Sure You Make Good: Advice from the Make Good Experts

Thanks to Sydney’s strong and still-growing economy and job market, commercial property vacancy rates in the Sydney area are forecast to reach 15-year lows by the end of 2017.Landlords are finding themselves in an enviable position. With a glut of commercial tenants to choose from, they are being especially stringent in their make good requirements.

This is hardly a new phenomenon; make good obligations have long been known as the sting in the tail. The principles behind them are sound enough. When a tenant leases office space or retail property from a landlord, the lease will usually contain clauses stipulating the precise condition in which the premises are to be returned to the landlord. Make goods requirements, which must be completed before the lessee’s bond is returned, usually include:

• Removing existing shop or office fitout

• Rectifying base building walls (this includes removing all fittings and repairing even minor damage caused by fit out)

• Painting all walls in the colour they were in prior to fit out

• Reconfiguring fire and mechanical services to original design

• Removing existing flooring

• Rectifying all flooring (this can include everything from deep cleaning carpets to installation of new tiles or carpeting)

• Thorough cleaning of all amenities

Ostensibly, make good obligations provide both parties with more clarity than they would have without them, but, in many cases, they make obligations less clear than they are under common law, which demands simply that premises be returned to the landlord in a similar condition—excusing fair wear and tear—to the one it was in when the lease was signed. The foggier the wording of make good obligations (and they are often purposefully unclear), the riper they are to be exploited by aggressive and litigious landlords. To clear up some of the confusion surrounding make goods, let’s shine a little light on the subject.

Why the Sudden Sting?

The main problem that tail-end lessees have with make good requirements is the way they so often lie concealed in the weeds, springing out at precisely the worst time. The months leading up to the end of a lease are usually those that are least convenient in terms of unexpected costs. Relocation usually (though certainly not always) suggests growth within the relocating organisation. Closing one’s doors usually suggests the opposite (perhaps the end of the line for that particular business venture). Whether the tenant looking to finalise his or her lease is facing relocation costs or not, budgets tend to be strained at the moment when makegood requirements make their presence felt.

Although the financial strain associated with make good requirements comes at the tail end of the lease, the root of the problem is at the other end. Here, two issues overlap: first, lessees are so eager to take possession of the premises that they do not first seek clarification surrounding the end-of-lease make good requirements; second, ambiguous and non-threatening language makes make good clauses easy to gloss over or misunderstand. Enthusiasm and a lack of clarity inevitably lead to a host of assumptions on the part of the lessee. These, in turn, can lead new tenants to move forward with renovations and office-wide fit outs without first documenting the original state of the property. This leaves them at the mercy of the landlord when it comes time to make good. Fulfilling their contracted obligations to the letter can come with staggering costs. Let’s take a look at a few strategies that can help minimise these outlays.

A Makegood Expert Allows You To Approach The Tail Confidently

The best piece of advice when it comes to making good is perhaps the most obvious as well. Whether you are at the beginning or the end of your lease, an experienced makegood expert will represent the difference between manageable outlay and staggering costs. There are two times when seeking expert advice is crucial. Let’s look at each of them separately:

1. At the beginning of the lease: This is where getting it right can save you substantial outlay at the tail end of the lease. Contact a lawyer or a group with a long track record of successful makegoods and have them review your makegood requirements and prepare a condition report that fully documents the conditions of the premises. If you’re yet to sign a lease, they can also help you negotiate clearer end-of-lease terms with the lessor. It may very well be that the fitout you have planned will add substantial value to the property (never assume that this is self evident to the landlord, though). By consulting an expert, you can be sure that a balance is struck between the landlord’s interests and your own.

2. At the tail end of the lease: If you have been caught by the sting in the tail, your first port of call should be a makegood expert. Comprehensive makegood services should cost, depending on the exact nature of the services required, somewhere in the range of $100-$500 per square metre. Many landlords will be eager to accept a financial settlement in lieu of a complete fulfillment of make good obligations, but invariably these cash settlements benefit the landlord more than they do the departing tenant. What is more, cash settlements can leave departing tenants exposed to unexpected costs. While a cash settlement may cover fit out removal, it may not cover more basic requirements like cleaning, repainting, etc. Allowing the lessor to decide what they feel is fair tends to leave the lessee holding the short end of the stick. Some landlords will even assign make good costs to lavatory or executive office fit outs that they end up keeping (meaning that you’ve not only paid for the fit out, you’ve also paid to have them made good the premises—effectively doubling the amount of money you have handed over to the landlord without good reason). A makegood professional will make sure that the landlord isn’t taking you for a ride, and the cost to you will invariably be less than the financial settlement sought by the landlord. Once an agreement has been reached as to what is the tenant’s responsibility and what is the landlord’s, your makegood expert will fulfill all the requirements on your behalf, making sure you get every dollar of your bond that you’re entitled to.

Finally, remember that a bit of planning from the outset will go a long way to reduce surprises and ease burdens down the road. If there are make good requirements embedded in the lease’s tail, the cross-that-bridge-when-we-get-to-it approach inevitably leads to significant and unexpected out-of-pocket costs. Consult an expert at both ends of the lease. They will give you the clarity you need to take the sting out of your lease’s tail.