Fitout terminology trips tenants up more often than most people in the industry realise. The problem is not that the terms are obscure. Most of them sound familiar enough that tenants assume they understand what they mean. But the commercial construction meaning of a term often differs from the everyday meaning, and those differences can lead to miscommunication, misaligned expectations, and decisions made on incorrect assumptions. When a tenant hears “practical completion” and thinks it means the office is ready to move into, or hears “make good” and thinks it means a minor touch-up, the gap between expectation and reality creates friction that could have been avoided.
This article covers the fitout terms that tenants most commonly misunderstand, starting from what tenants typically assume each term means and explaining what it actually means in a commercial fitout context.
Practical Completion
What tenants assume it means: the office is finished and ready to use. What it actually means: the construction work is substantially complete, but the space may not be fully operational. Practical completion is the contractual milestone that marks the point at which the builder’s work is done to a standard that allows the space to be occupied, even though minor defects may remain. It triggers the start of the defect liability period and typically triggers the final payment to the builder.
The critical distinction is that practical completion does not mean move-in ready. Furniture may not be installed, IT systems may not be configured, the final clean may not be done, and defect items may still need rectification. There is always a gap between practical completion and the day the business is actually operating from the space, and tenants who equate the two in their programme end up scrambling to cover the difference.
The gap between practical completion and move-in is typically one to two weeks for a well-managed project, and it covers furniture delivery, IT setup, security access provisioning, the final clean, and any defect rectification that needs to happen before staff arrive. Tenants who build this gap into their programme from the start avoid the compressed, stressful handover that results from assuming practical completion and occupation happen on the same day.
Make Good
What tenants assume it means: tidying up the space at the end of the lease, perhaps patching a few holes and getting the carpet cleaned. What it actually means: returning the tenancy to the condition specified in the lease, which typically means removing the entire fitout, reinstating the base building ceiling, services, and finishes, and leaving the space in a clean, lettable condition.
The gap between the assumed meaning and the actual meaning can represent tens or hundreds of thousands of dollars, depending on the complexity of the fitout. Tenants who do not understand make good obligations until the lease is expiring often face a significant unexpected cost. The time to understand and plan for make good is at the beginning of the tenancy, not the end.
The scope and cost of make good varies enormously depending on the extent of the fitout and the condition of the base building. A simple fitout with demountable partitions and minimal services modifications may cost a fraction of a complex fitout with full-height plasterboard walls, ceiling modifications, and extensive mechanical and electrical work. Tenants who understand this relationship can make fitout design decisions that balance their in-tenancy needs with their end-of-lease exposure.
Base Building
What tenants assume it means: the finished building as it stands. What it actually means: the building structure and core services provided by the landlord, excluding the tenant’s fitout. Base building typically includes the structural frame, the external envelope, the core services such as lifts and fire stairs, the main mechanical and electrical plant, and sometimes a basic ceiling grid and services distribution to the tenancy.
The misunderstanding is significant because it affects how tenants evaluate the cost and scope of their fitout. A tenant who assumes the base building includes a finished ceiling, adequate power distribution, and properly zoned air conditioning may be surprised to discover that these elements need to be installed or substantially modified as part of the fitout scope. The actual base building condition varies enormously between buildings and directly affects the fitout cost.
Variations
What tenants assume it means: optional extras or upgrades chosen during the project. What it actually means: any change to the contracted scope of work, whether initiated by the tenant, required by unforeseen site conditions, or directed by the certifier or landlord. Variations can increase or decrease the contract price, and they are the primary mechanism through which fitout budgets overrun.
The misunderstanding matters because tenants often do not realise that a direction from the building certifier to add fire stopping, a site condition that requires additional electrical work, or an amendment requested by the landlord all constitute variations that carry a cost to the tenant. Variations are not just the tenant asking for extras. They are any departure from the original scope, and managing them is one of the most important aspects of budget control during construction.
The best protection against variations is a complete and well-documented design before construction begins. Every element that is not resolved during design becomes a potential variation during construction, and variations priced during the build are almost always more expensive than the same decision would have been during the design phase. Tenants who invest properly in design documentation typically spend less on variations than those who try to save time by starting construction before the design is fully resolved.
Contingency
What tenants assume it means: padding in the budget that can be removed to reduce costs. What it actually means: a deliberate provision for the genuine uncertainties that exist in any construction project. Contingency covers variations for unforeseen site conditions, minor scope adjustments that arise during construction, and the normal degree of uncertainty in any project that involves discovering what is behind walls and above ceilings as work proceeds.
A contingency of five to ten per cent is standard industry practice and is not a sign of poor planning or inflated pricing. Tenants who remove the contingency to bring the headline budget down are not saving money. They are simply transferring the risk to themselves, and when the inevitable unforeseen costs arise, they have no provision to cover them. The contingency should be viewed as part of the realistic project cost, not as an optional buffer.
The size of the contingency should reflect the project’s risk profile. A fitout in a newer building with good documentation and a straightforward scope might justify five per cent. A fitout in an older building with incomplete records and a complex scope might warrant ten per cent or more. The fitout company’s assessment of the project’s risk factors is usually the best guide to setting an appropriate contingency level.
Design and Construct
What tenants assume it means: the fitout company does both the design and the building, which sounds straightforward. What it actually means: a contractual arrangement where a single entity is responsible for both the design and the construction, with single-point accountability for the entire project. The tenant contracts with one party rather than managing separate design and construction contracts.
The distinction matters in the detail. In a design-and-construct arrangement, the fitout company takes responsibility for the buildability of the design, the coordination between disciplines, and the delivery of the finished product to the agreed specification. In a traditional procurement model with separate design and construction contracts, the coordination risk sits more with the tenant. Both models work, but tenants should understand which model is being proposed and what the implications are for risk, cost, and their level of involvement.
Defect Liability Period
What tenants assume it means: a warranty on the fitout, similar to a product warranty. What it actually means: a specific contractual period, typically twelve months from practical completion, during which the builder is obligated to rectify defects that are identified. The scope of what constitutes a defect, how defects are reported, and the builder’s obligations during this period are defined in the contract.
The key misunderstanding is about what the defect liability period covers and does not cover. It covers workmanship defects and material failures that emerge during normal use. It does not typically cover damage caused by the tenant, wear and tear from use, or issues arising from maintenance neglect. Tenants should document any defects promptly during the defect liability period and report them formally to ensure they are addressed within the contractual timeframe.
Why Terminology Matters
Misunderstood terminology leads to misaligned expectations, and misaligned expectations lead to disputes, disappointment, and decisions made on incorrect assumptions. A tenant who thought “practical completion” meant the office was ready to use will be frustrated when it is not. A tenant who thought “contingency” was optional padding will be stressed when the budget runs out. A tenant who thought “make good” was a minor clean-up will be shocked by the cost at lease end.
The most effective way to prevent terminology-related misunderstandings is to ask questions when unfamiliar terms are used, to request plain-language explanations in contracts and proposals, and to work with a fitout company that communicates clearly rather than hiding behind industry jargon. The terminology itself is not the problem. The problem is assuming you understand it when the commercial construction meaning differs from the everyday meaning.
If you are navigating the fitout process and want to ensure you understand every term and commitment before you agree to it, we can explain the process in plain language and make sure there are no surprises along the way.
Call us on 1300 60 93 93