When it comes to commercial property leases, tenants are often required to restore the premises to their original condition before vacating. This process, known as a make good, offers benefits for both tenants and property owners.
Depending on the make good clause in the lease, the process could be as simple as leaving the property empty and clean with all repairs made, or it could involve restoration to the original condition.
Make good provisions are important to allow the property owner to lease the premises to another tenant. Tenants and property owners should understand their contractual obligations to make sure they comply with the requirements and know what their make good obligations will be at the end of the lease. Understanding the obligations at the outset can help to avoid disputes down the track.
What is a make good?
So, what is a make good? A make good ensures the property is returned to a leasable or saleable condition. Its requirements vary according to the commercial lease agreement.
Generally, make goods include the removal of tenant alterations or improvements such as walls or built-in fixtures that were not part of the original space. It could involve the restoration of the property to its base building, known as a warm shell or cold shell.
Make good processes may also involve the upgrading of some services to meet building codes. This could include new fire safety alarms or accessibility requirements.
Repairs and maintenance are important to make good when vacating a commercial property. This could include fixing plumbing or electrical systems, repairing damaged surfaces, or replacing broken fixtures. There is often tolerance for wear and tear within the contract.
Why do a make good at the end of the lease?
Tenants should be aware of their make good obligations before their lease agreement is completed. Importantly, the make good works will ensure they meet their legal requirements under the lease agreement.
By completing the make good to a high quality, tenants fulfil their contractual responsibilities and demonstrate their compliance with the lease.
It will also reduce potential – and unexpected – additional rectification costs after exiting the premises.
Further, doing the work when required will avoid disputes and legal issues between the lessor and property owners.
It also reflects the tenant’s professionalism and reputation, making it easier to secure future leases.
Benefits of a make good for property owners
Property owners can also arrange a make good for their property, if it is not a contractual requirement for the tenant, to bring it up to a contemporary standard.
This fitout prepares the property for new tenants efficiently, with a clean, well-maintained and compliant space for prospective lessors to view. This increases the chance of a timely rental in competitive markets and reduces periods of vacancy.
Ensuring proper maintenance and refurbishments also ensures the value of the property is maintained. Any deterioration or damage to the property is stopped, which can prevent unexpected works. Further, properties in excellent condition with high-quality fitouts can attract higher rents.
Make good terms
When reviewing the lease agreement, it is important to understand the terms.
Commercial property make goods may refer to a warm shell or a cold shell fitout, which refers to the level of completion of the property’s interior.
Warm shell fitout
A warm shell fitout involves the installation of essential building services and basic finishes, creating a functional and ready-to-lease space. The premises is made functional, but it still requires additional fitout work by the tenant to meet their specific requirements.
Cold shell fitout
A cold shell, on the other hand, means the space will need a fitout before it can be occupied. It is a blank canvas, often with unfurnished walls, floors, electricals and air-conditioning and possibly without ceilings.
Make goods with RAW Commercial Projects
RAW Commercial Projects conducts fitouts and make goods across southeast Queensland. This Sunshine Coast project involved stripping out an ageing fitout across 1200 sqm back to a warm shell.
We replaced all the ceilings, walls, carpet, electricals, air-conditioning, joinery, workstations and loose furniture. The Maroochydore commercial space is now transformed into a contemporary open-plan space ready for tenants.
RAW Commercial Projects are experts in commercial fitouts. Find out more about how we work, and how we can help with your next project.