A make good clause in a commercial lease requires the tenant to return the premises to a set condition when the lease ends.
This can mean removing the fit-out, repairing damage, repainting, and in some cases stripping the space back to bare base building condition.
The exact scope depends entirely on the wording, and getting it wrong can cost a tenant tens of thousands of dollars on the way out.
Most tenants tick the box without reading it, then face a shock bill years later when they hand back the keys.
This guide explains what your make good obligation really means, what it can cost, how the law limits it, and how to negotiate it down before you sign.
What Does a Make Good Clause Require You to Do When a Commercial Lease Ends?
A make good clause requires you to return the leased premises to the condition stated in the lease, usually at expiry or early termination.
Depending on the wording, that can include removing your entire fit-out, taking out partitions and built-in joinery, patching and repainting walls, replacing damaged floor coverings, and removing signage and cabling.
Some clauses go further and require you to restore the space to “base building condition”, which is a bare shell with no tenant improvements at all.
The obligation is set by the words in your lease, not by what feels reasonable.
Two clauses can use very different language and produce wildly different bills, so the precise drafting is what decides your liability.
A make good obligation is one of the few lease terms that can cost a tenant more at the end than they ever expected at the start.
What Is Base Building Condition and Why Does It Matter?
Base building condition means returning the premises to the bare, unfitted state the building provides before any tenant works, such as an empty shell with basic services only.
This is the most demanding form of make good because it can require you to remove items you did not even install, including fit-out left behind by a previous tenant.
If your lease asks for base building condition, you may have to strip ceilings, remove all internal walls, take up flooring, and cap off services.
The cost of reaching base building condition is often far higher than simply removing your own fit-out, so this single phrase can change your exit budget dramatically.
Always check whether the lease defines base building condition with a plan or specification, because a vague definition leaves room for the landlord to demand more.
Do You Have to Repair Fair Wear and Tear?
Fair wear and tear is commonly excluded from make good obligations, which means you are usually not required to fix the ordinary deterioration that comes from normal use over time.
Whether it is excluded depends on the wording of your lease and the law in your State, so it is not automatic in every case.
Worn carpet in a walkway, minor scuffing on walls, and faded paint are usually treated as fair wear and tear.
Damage caused by negligence, misuse, or your specific business activities is not fair wear and tear, and you will generally be liable to repair it.
The line between the two is often disputed, because there is no fixed legal definition and it turns on the facts of each case.
A detailed condition report taken at the start of the lease is the single best tool for proving what was already worn before you moved in.
How Much Can a Make Good Clause Cost a Tenant?
Make good can run into the tens or even hundreds of thousands of dollars, because the cost is driven by how much fit-out has to be removed and how far back the premises must be restored.
The more you built into the space during the lease, the more there is to take out at the end.
A moderate, medium-quality office fit-out averaged around AU$2,453 per square metre across the Asia Pacific region in early 2025, with the global average sitting closer to AU$3,137 per square metre, according to JLL’s Australia and New Zealand Fit-Out Cost Guide 2025.
The same guide notes that Australia is among the most expensive fit-out markets in the region, so local costs tend to sit at the higher end of those figures.
Removing and reinstating that work at the end of a lease is itself a construction project, with demolition, waste removal, trades, and repainting all adding up.
For a small business on a tight margin, an unbudgeted make good bill can wipe out the savings from years of careful trading.
This is why make good should be costed and planned long before the lease nears its end, not treated as an afterthought.
What Are the Main Types of Make Good Clauses?
Common make good wordings in Australian commercial leases fall into four broad types, and each one shifts the cost and risk differently between landlord and tenant.
The table below sets out how the common types compare across what the tenant must do, the typical cost exposure, and where each type tends to appear.
| Type of clause | What the tenant must do | Typical cost and risk | Where it is common |
| Base building condition | Strip out all fit-out, partitions, services and floor coverings and return a bare shell | Highest | Older office leases and where the landlord wants flexibility for the next tenant |
| Original or commencement condition | Remove the tenant’s own fit-out, repair damage and repaint, with fair wear and tear excepted | Moderate to high | A very common wording in commercial leases |
| Good and tenantable repair only | Fix damage beyond fair wear and tear, with no full strip-out required | Lower | Shorter leases and simple premises |
| Cash settlement or payment in lieu | Pay the landlord an agreed sum instead of carrying out the works | Fixed and known in advance | Negotiated exits and where the landlord plans its own works |
The biggest danger sits with base building and original condition clauses, because both can require you to remove a substantial fit-out.
A cash settlement can give a tenant more cost certainty, since it fixes the amount up front and removes the risk of a drawn-out dispute over the standard of work.
The right choice depends on your premises, the length of your lease, and how much you plan to invest in the space.
Can a Landlord Always Recover the Full Cost of Make Good?
No, a landlord cannot always recover the full cost, because the amount it can claim depends on the type of obligation breached and the State the premises are in.
Australian law draws a key distinction between reinstatement obligations, which require a specified condition, and repair obligations, which require the premises to be kept in repair.
Where a tenant breaches an obligation about the physical condition of the premises, courts may award the cost of putting the premises back into the required state.
In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8, the courts awarded about $1.38 million in damages after a tenant carried out major unauthorised works, made up of $580,000 for the cost of restoring the premises and $800,000 for lost rent during the works, and the High Court upheld that result.
That case shows reinstatement cost can be the measure of damages, rather than just the drop in the property’s value.
The rules are not uniform across the country, though, and a separate set of limits can apply to ordinary repair and yield-up covenants.
When Does the Diminution in Value Cap Apply?
In New South Wales, section 133A of the Conveyancing Act 1919 caps damages for breach of a covenant to repair or to leave premises in repair.
Under that section, a landlord cannot recover more than the amount by which the value of its interest in the property is actually reduced by the breach.
Under this provision, if the breach causes no reduction in value, the landlord may recover nothing for the failure to comply with that repair or yield-up covenant.
The section also bars recovery where the premises are going to be demolished or so heavily altered soon after the lease ends that any make good work would be valueless.
This matters in the current market, where the national office vacancy rate rose to 15.9 per cent in the six months to January 2026, according to the Property Council of Australia.
High vacancy on its own does not reduce a tenant’s make good liability.
The stronger legal point is whether the landlord actually suffers a loss, for example where it plans to strip and redevelop the space so the make good works would be valueless, and whether the covenant is caught by a statutory cap such as section 133A.
How Have Recent Law Changes Affected Make Good in Queensland?
From 1 August 2025, the Property Law Act 2023 (Qld) replaced the old Property Law Act 1974 (Qld) and changed the framework for commercial leases in Queensland.
The new Act sets out a list of implied lease terms in Schedule 1, including an obligation for the tenant to keep the premises in good condition and to yield them up at the end of the lease in at least the same repair and condition as at the start.
The same schedule requires a tenant to remove its own fixtures and repair any damage caused by that removal.
The standard terms in Schedule 1 generally apply only where the lease does not say otherwise, so they can usually be changed by the express words of the lease.
Separately, some provisions of the Act, such as certain rules about landlord consent and relief against forfeiture, can apply even where a lease tries to exclude them.
Because some provisions apply to leases whether they were entered into before or after the Act commenced, though not every change applies in the same way, Queensland landlords and tenants should check how the new rules affect their existing make good obligations.
How Can You Limit or Negotiate Your Make Good Obligations?
The most powerful time to limit make good is before you sign, when you still have leverage and the landlord wants to secure you as a tenant.
Once the lease is signed, your obligation is harder to change unless the landlord agrees or a statutory limit applies.
You can ask to narrow the clause so it only requires removal of your own fit-out, rather than a full restoration to base building condition.
You can also ask for any existing fit-out to be excluded, so you are not made responsible for items installed by a previous tenant or by the landlord.
A well-drafted clause should clearly define the return condition by reference to a plan or condition report, so there is no argument later about what “original condition” actually meant.
Small changes to the wording at this stage can save very large sums at the end of the lease.
Why Is a Condition Report So Important?
A condition report is the evidence that fixes the state of the premises at the start of the lease, which sets the benchmark for what you must hand back.
Before you take possession, take detailed, date-stamped photos and videos of every part of the space, including existing damage, worn finishes, and any fit-out already in place.
Attach that record to the lease where possible, so both parties agree on the starting condition in writing.
If a dispute arises at the end of the lease, this record is often the difference between a manageable bill and an expensive argument.
Without a condition report, you may struggle to prove that damage or wear was already there before your tenancy began.
Can You Negotiate a Make Good Cap or Cash Settlement?
Yes, many landlords will agree to a make good cap or a fixed cash settlement, especially in a competitive leasing market.
A monetary cap sets a maximum dollar figure for your make good liability, which lets you budget with certainty and protects you from open-ended costs.
A cash settlement lets you pay the landlord an agreed amount in place of carrying out the works, which can be cheaper and far less stressful than managing a strip-out yourself.
These options are particularly worth pursuing where the landlord is likely to refit the space for the next tenant anyway.
Getting the cap or settlement figure right, and the wording that supports it, is where careful legal review pays for itself.
Need Help With a Make Good Clause in Your Commercial Lease?
A make good clause can be the most expensive term in your entire lease, so understanding and negotiating it early is one of the smartest moves a tenant or landlord can make.
As commercial lease lawyers in Australia, my law firm offers fixed-fee help to review, negotiate, and resolve make good obligations for tenants and landlords across the country.
Contact the team today by calling 1300-529-888 .
Frequently Asked Questions
What happens if I do not complete make good at the end of my lease?
If you do not complete make good, the landlord can claim damages for your breach of the lease. Depending on the obligation and the State, this may be the cost of the works or the reduction in the property’s value. The landlord may also withhold your security deposit or call on a bank guarantee to cover the cost.
Does fair wear and tear have to be repaired under a make good clause?
Fair wear and tear is usually excluded from make good obligations, so you generally do not have to fix the ordinary deterioration caused by normal use. Worn carpet and minor scuffing typically fall within fair wear and tear. Damage from negligence or misuse is not excluded, and there is no fixed legal definition, so disputes are common.
Can a make good clause require me to return the premises to base building condition?
Yes, if the lease says so. Base building condition is the most demanding form of make good and can require you to remove all fit-out, including items installed by a previous tenant, and strip the space back to a bare shell. Because this is far more costly than removing your own fit-out, the wording should always be checked before signing.
Is make good negotiable before signing a commercial lease?
Yes, make good is negotiable, and before signing is when you have the most leverage. You can ask to narrow the scope, exclude existing fit-out, set a monetary cap, or agree a fixed cash settlement instead of doing the works. Once the lease is signed, the obligation is harder to change unless the landlord agrees or a statutory limit applies.
Can a landlord recover make good costs if the premises will be demolished?
In some cases, especially under New South Wales repair-covenant rules. Section 133A of the Conveyancing Act 1919 bars a landlord from recovering for failure to make good where the premises will soon be demolished or altered so much that the works would be valueless. Whether this applies depends on the type of covenant, the lease, and the State.