Australian Make-Good Clauses

A make-good clause in an Australian commercial lease requires the tenant to return the premises to a specified condition at the end of the lease term — and "specified condition" can mean anything from "good repair and condition with normal wear and tear excepted" (relatively mild) to "base building shell condition with all tenant fit-out removed" (catastrophic). The cost difference between those two standards on a 500 sqm office tenancy in Sydney or Melbourne is typically AUD $15,000 vs. $180,000+. The make-good obligation is the single largest hidden cost in most Australian commercial leases, and it is consistently underestimated by tenants because the clause sits buried in a schedule and looks like boilerplate.

The economics are straightforward but unforgiving. Make-good costs in 2026 typically run $30–100/sqm for basic office reinstatement, $50–150/sqm for retail, and $150–300/sqm for hospitality (kitchens, ducting, grease traps, specialised plumbing and ventilation). On a 1,000 sqm hospitality lease in Surry Hills or Fitzroy, that is a $150,000–$300,000 bill delivered to the tenant in the final 90 days of their lease — usually at a time when they are also dealing with relocation costs, fit-out of the new premises, and end-of-business-year cash flow strain.

The three make-good standards — and the gap between them

Australian leases typically specify one of three standards. Each phrase has a defined commercial meaning, even when the lease doesn't spell it out:

1. "Shell" / "Original Condition" / "Cold Dark Shell" make-good

The tenant must remove all fit-out and return the premises to the base building condition as originally handed over. This includes:

• Removing all partitions, ceilings, lighting, and floor coverings
• Removing all mechanical services (HVAC ductwork to tenancy, kitchen exhaust, specialised power, data cabling, security systems)
• Removing all bathrooms, kitchenettes, and tea points installed by the tenant
• Patching and repairing the slab, walls, columns, and ceiling slab back to base building specification
• Reinstating any base building services that were modified

This is the most expensive standard. Costs run $80–250/sqm for office, $100–300/sqm for retail, and $200–400/sqm for hospitality. For a 800 sqm Pitt Street Mall retail tenancy, the bill can exceed $250,000.

2. "Good Repair and Condition" make-good

The tenant must maintain the premises in good repair throughout the term and return them in that condition at expiry — but they are not required to remove tenant fit-out. The landlord effectively inherits the fit-out, including partitions, ceilings, and services.

This is the tenant-friendly standard. Make-good in this scenario is mostly cosmetic — repainting, carpet cleaning or replacement, minor patching, fixing any damage beyond fair wear and tear. Costs typically $10–30/sqm. For the same 800 sqm tenancy, the bill might be $15,000–$25,000.

Landlords increasingly resist this standard because it gives the next tenant a fitted-out tenancy "for free" — but it is achievable in markets with vacancy pressure (most CBDs in 2025–2026).

3. "Hand back in the condition handed over, fair wear and tear excepted"

The hybrid standard, and the most negotiable. The tenant returns the premises in the same condition they took occupation, accounting for fair wear and tear. If the tenancy was handed over as integrated fit-out (which is increasingly common in CBD office leasing), the tenant returns it as integrated fit-out. If it was handed over as base shell, the tenant returns it as base shell.

This standard requires a Condition Report (the Australian equivalent of a UK Schedule of Condition) annexed to the lease. Without a condition report, this standard collapses into a dispute about what condition the premises were "originally" in — a dispute the landlord usually wins because they hold the documentation.

State-level variations — Retail Leases Acts

Each Australian state and territory has its own Retail Leases Act, and these vary significantly in how they treat make-good — see the Australia commercial lease guide for the cross-jurisdictional overview:

New South Wales — Retail Leases Act 1994

Section 38 requires the landlord to disclose any make-good obligation in the pre-lease Disclosure Statement. Defective disclosure can be grounds to limit the make-good claim. NSW Civil and Administrative Tribunal (NCAT) has jurisdiction for retail lease disputes and consistently applies a diminution-style analysis — if the landlord intends to refurbish or demolish, the recoverable make-good is reduced accordingly. See the New South Wales jurisdiction guide.

Victoria — Retail Leases Act 2003

Section 56 prohibits indemnity provisions that shift costs beyond what the Act permits — aggressive make-good clauses can be challenged. The Victorian Civil and Administrative Tribunal (VCAT) has been willing to find that "strip to shell" make-good is unenforceable where the lease did not start in shell condition. See the Victoria jurisdiction guide.

Queensland — Retail Shop Leases Act 1994

Section 43 requires a Disclosure Statement identifying the make-good obligation and its cost (or method of calculation). Queensland Civil and Administrative Tribunal (QCAT) is the dispute forum. See the Queensland jurisdiction guide.

Other states and non-retail leases

WA, SA, TAS, ACT, and NT each have their own Retail Leases Act with similar disclosure requirements. Critically, the Retail Leases Acts only apply to retail leases — pure office and industrial leases fall outside, with no statutory disclosure obligation, no tribunal jurisdiction, and no implied limits on landlord overreach. Confirm with your solicitor whether the Retail Leases Act of your state applies.

The Condition Report — your single most important protection

A Condition Report is the Australian equivalent of a UK Schedule of Condition. It is a photographic and written record of the premises' condition at the date of lease commencement, annexed to the lease as a schedule, with the make-good clause expressly qualified by reference to it.

A proper Condition Report:

• Is prepared by an independent building surveyor or quantity surveyor (not the agent)
• Includes photographs of every room, every wall, every floor, every ceiling, every fitting
• Documents existing damage and wear
• Is reviewed and signed by both landlord and tenant before lease execution
• Includes a written schedule cross-referenced to the photos
• Is annexed to the lease as a numbered schedule

Cost: $1,500–$4,500 for a typical small commercial premises. Downstream make-good saving: typically $20,000–$80,000 on a 5-year lease, more on longer terms.

Without a Condition Report, every dispute about pre-existing damage becomes the tenant's burden of proof. With one, the burden flips to the landlord.

Real cost examples — what tenants actually pay

These are 2025–2026 indicative prices in major Australian metros (Sydney, Melbourne, Brisbane). Regional centres run 20–35% lower.

Office, 350 sqm, "good repair" standard, 5-year lease:

• Repaint walls and ceilings ($4,500), replace carpet ($14,000), repair partition damage ($2,500), HVAC service ($2,000)
• Total: ~$23,000 ($66/sqm)

Office, 350 sqm, same tenancy, "shell condition" make-good:

• Demolish partitions and tea point ($18,000), remove ceiling and lighting ($14,000), HVAC ductwork removal ($11,000), flooring back to slab ($9,000), data and electrical strip-out ($7,000), patch and final clean ($9,000)
• Total: ~$68,000 ($194/sqm)

Hospitality (café), 180 sqm, "shell condition" after 6-year lease:

• Demolish kitchen with ductwork and grease trap ($45,000), commercial gas/plumbing/electrical strip ($28,000), tiling/flooring/joinery removal ($32,000), services capped to base building ($15,000), patching, rubbish removal, and certificates ($26,500)
• Total: ~$146,500 ($814/sqm)

The hospitality numbers are why operators routinely walk away from final-quarter make-good and let the landlord draw on the bank guarantee — because the bank guarantee is usually 3–6 months rent (often $40,000–$80,000), which is less than the make-good cost.

The bank guarantee — and why it matters at make-good

Australian commercial leases typically require the tenant to provide a bank guarantee equal to 3–6 months of rent as security for performance, including make-good. The landlord can draw on the bank guarantee if the tenant fails to perform make-good — and the unrecovered balance becomes a debt the landlord can pursue.

The interaction with make-good is critical:

• A tenant who walks away leaving the make-good undone forfeits the bank guarantee and remains liable for any shortfall
• A tenant who performs the make-good themselves can have the bank guarantee returned, often within 30–60 days post-handback
• Negotiate return of bank guarantee within 30 days of vacant possession (subject to landlord's right to deduct documented make-good shortfall) — never a vague "in due course" wording

See the bank guarantee entry in the glossary for the precise mechanics.

Negotiation tactics that actually work

The five highest-impact make-good negotiations, in order of typical savings:

1. Insist on "good repair and condition" or "as handed over" standard, not "shell" or "original." This alone can shift $50,000+ of liability off the tenant on a typical lease.

2. Annex a Condition Report to the lease, with the make-good clause expressly qualified by reference to it.

3. Specify which alterations the tenant must remove and which can remain — agreed in writing at the time of the licence to alter, not negotiated at end of term.

4. Cap make-good at a fixed dollar amount — increasingly accepted in soft markets. A capped make-good of $40,000 on a 500 sqm office is far better than an uncapped clause.

5. Negotiate a "landlord election" mechanism — the landlord chooses, at least 6 months before lease end, whether to require make-good or accept the tenant's fit-out in situ. Many landlords prefer to keep the fit-out for the next tenant.

For the precise contract language for each of these, see the clause library and the outgoings entry in the glossary.

What "outgoings" has to do with make-good

Australian leases pass through outgoings (operating expenses) to the tenant — usually including land tax, council rates, water rates, building insurance, and management fees. The outgoings clause is usually negotiated in isolation, but it interacts with make-good in two ways:

• HVAC servicing during the term is often within outgoings. A landlord who fails to service HVAC will have a stronger make-good claim at expiry (because the HVAC will need replacing). Insist on HVAC servicing during the term, by a contractor approved by both parties.

• Capital expenditure exclusions in the outgoings clause should mirror the make-good exclusions. If the lease excludes capital from outgoings, the make-good clause should not require the tenant to fund what is effectively a capital improvement at the end of term.

How BizLeaseCheck helps

BizLeaseCheck reads your Australian lease, identifies which make-good standard applies (shell, good repair, or hand-back-as-received), flags whether a Condition Report is annexed, and quantifies the likely make-good cost in 2025–2026 metro rates. The report identifies which make-good clauses can be negotiated before signing and shows you the negotiable alternatives. See a sample report or upload your Australian lease for a free preview.

Not legal advice. Australian make-good obligations vary significantly between states, the Retail Leases Acts have technical applicability rules, and dispute outcomes depend on building-specific evidence — use the BizLeaseCheck report to identify issues for discussion with a qualified Australian commercial leasing solicitor before signing.