New compliance requirements are coming. Starting from 1 July 2026 you may be asked to provide additional identity, ownership or source of funds documentation when working with us. Find out why here.
If your business is approaching the end of a commercial lease, understanding your make good obligations early can help you avoid unnecessary works, protect your financial position and reduce the risk of a costly dispute.
Commercial lease disputes often arise at the end of a lease when the tenant vacates the premises. One of the most common areas of disagreement concerns the tenant’s obligation to “make good” the premises.
Many make good disputes become far more expensive because advice is only sought after the tenant has vacated the premises. Understanding your rights and obligations before the lease ends can help avoid unnecessary litigation.
This article will cover:
A ‘make good’ clause is a provision in a commercial lease that sets out what the tenant must do before returning possession of the premises to the landlord at the end of the lease.
Every lease is different. Some clauses impose relatively minor obligations, while others require extensive reinstatement work.
Depending on the wording of the lease, a tenant may be required to:
The extent of the tenant’s obligations depends on the wording of the lease. There is no “standard” make good obligation under NSW law.
Make good disputes often involve significant sums of money.
A landlord may obtain quotes exceeding $100,000 for reinstatement works, while the tenant may argue that much of the work is unnecessary, exceeds the lease requirements, or relates to upgrades that the landlord intended to undertake anyway.
Common disputes include:
Many of these disputes ultimately depend on careful interpretation of the lease and the surrounding evidence.
Landlord and tenants should be aware of section 133A of the Conveyancing Act 1919 (NSW), which applies to leases and make-good clauses in New South Wales.
Many landlords are surprised to discover that even if a tenant has breached a repair obligation, they may not automatically recover the full cost of carrying out the repairs.
Generally speaking, where the breach concerns a covenant to keep premises in repair or to leave the premises in repair at the end of the lease, section 133A limits the damages recoverable.
In broad terms, damages cannot exceed the amount by which the value of the property has been diminished because of the tenant’s breach. This means that the cost of repairs is not necessarily the amount that can be recovered.
For example, if repairs would cost $120,000 but the tenant’s failure to carry out those repairs only reduced the value of the property by $40,000, the landlord’s recoverable damages may be limited to the lesser amount. However, practically speaking, often the costs of repairs is the amount of dimunition in value of the property.
Section 133A also contains an important protection where the landlord intended to demolish or substantially alter the premises shortly after the lease ended. In those circumstances, repairs that would immediately have been removed or rendered worthless may not be recoverable.
However, not every ‘make good’ obligation is necessarily a repair covenant.
Many commercial leases require tenants to undertake broader reinstatement obligations, such as removing fit-outs, restoring the premises to their original configuration, or removing tenant-installed services. Depending on the wording of the lease, these obligations may be treated differently from ordinary repair obligations.
As the distinction can significantly affect the amount recoverable, legal advice should be obtained before assuming that section 133A either does or does not apply.
One of the most valuable documents in any ‘make good’ dispute is the condition report prepared when the lease commenced.
Unfortunately, many commercial leases commence without:
Years later, when the tenancy ends, neither party can confidently establish the original condition of the premises. This creates significant evidentiary difficulties.
A comprehensive entry condition report should ideally include:
Exit inspections should similarly be carefully documented to preserve evidence if a dispute arises.
Good documentation often prevents disputes altogether.
Many commercial lease disputes arise because the make good clause is vague or ambiguous.
Clauses requiring a tenant to leave the premises in “good condition” or “as originally received” may create uncertainty, particularly after a long-term tenancy involving multiple fit-outs, alterations or lease renewals.
Well-drafted clauses should clearly identify:
The more precise the clause, the less scope there is for costly disputes.
A common issue arises where a landlord purchases a commercial property that is already subject to an existing lease.
The new owner may inherit the lease but have little or no knowledge of the original condition of the premises when the tenancy commenced.
Questions often arise such as:
Without reliable evidence, it may be difficult to prove what the tenant is required to remove or restore.
If you are purchasing a commercial property subject to an existing lease, it is prudent to undertake due diligence before settlement.
This may include obtaining:
Where these documents cannot be located, legal advice should be sought well before the lease expires so that appropriate evidence can be gathered.
Many make good disputes become far more expensive because advice is only sought after the tenant has vacated the premises.Early legal advice can help identify:
Obtaining advice early can often avoid unnecessary litigation and reduce costs for both landlords and tenants.
Our commercial litigation team regularly advises landlords, tenants and property owners on commercial leasing disputes.
The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.
Australia’s proposed privacy reforms could change how businesses collect, use, share and protect personal information. Businesses should review their commercial contracts, data practices and AI arrangements now, before the proposals become law.
What does acting in good faith require of a director? Saxon Woods Investments Limited and others v Francesco Costa [2026] UKSC 21 highlights director duties, board governance and personal liability.
The mining services sector continues to evolve in response to changing market conditions, workforce challenges, technological advancements and increasing commercial pressures.
What 25 years of resolving business disputes has taught me about protecting growing SMEs.
For advisers involved in structuring intergenerational funding arrangements, a recurring question is whether a parent–child “loan” will be recognised and recoverable if the child later becomes involved in a family law property dispute.
In S.N.A Group Pty Ltd v Commissioner of Taxation, the Full Federal Court affirmed the need for formal written agreements between related parties. In allowing their formal agreement to expire, the respondents were liable to pay income tax on otherwise deductable expenses, administrative penalties, and the Commissioner’s cost of the appeal.
Succession planning is a critical consideration for small and medium-sized enterprises (SMEs) in Australia aiming to ensure business continuity and maximise value upon exit.
Effective April 1, 2025, to March 31, 2027, this measure aims to prioritise housing availability for Australian buyers, preventing foreign investors from purchasing properties that could otherwise be acquired by local residents.
The ability to register a security interests on the Personal Property Security Register (PPSR) can significantly enhance your chances of recovering debts, especially in cases where the debtor’s assets are limited or otherwise insufficient to meet obligations.
A comprehensive contract review will be necessary to identify if existing business contracts are standard form or contain any unfair contract terms, and if so, prioritise amending or removing unfair contract terms to align with the revised regulations.
The loss of key staff, particularly in the short term, can be a significant risk and important factor in determining whether to proceed with an acquisition of a business by a purchaser.
The purpose of this article is to help investors make a decision as to the structure of a proposed asset/share transaction, and specifically covers the top commercial, asset protection and tax minimisation considerations for these types of acquisitions.
