The financial side of make good catches many tenants off guard. The lease says the space needs to be returned to its original condition, and the cost of doing that work falls somewhere between the tenant and the landlord depending on how the lease is structured, what has been negotiated, and what happens during the exit process. In most cases, the tenant bears the majority of the cost, but the total figure depends on decisions made at the start of the lease as much as actions taken at the end.
Understanding who pays, how costs are typically allocated, and where the financial levers sit gives tenants a practical framework for managing make good costs rather than simply absorbing whatever number arrives at lease end.
The Default Position: The Tenant Pays
Under a standard NSW commercial lease, the default position is that the tenant is responsible for all costs associated with returning the premises to the condition specified in the make good clause. This includes the cost of removing all tenant improvements, repairing any damage caused by the fitout or its removal, and restoring the premises to the agreed baseline condition.
This default position reflects the basic commercial logic of a lease: the tenant leased a space in a certain condition, modified it for their own purposes, and is expected to return it to that condition at their own expense. The landlord’s contribution is typically zero unless the lease specifically provides for shared costs or the landlord has agreed to a reduced scope in writing.
For tenants who have never managed a commercial make good, the all-in cost can be a significant and unexpected expense. A make good on a moderately fitted office of 300 to 500 square metres can cost anywhere from $25,000 to $100,000 or more depending on the complexity of the fitout, the building’s requirements, and the condition of the premises after several years of use. Hidden costs in office fitouts have a way of reappearing at the make good stage, where every shortcut and saving from the original build translates into additional restoration work.
When the Landlord Bears Part of the Cost
There are several scenarios where the landlord effectively absorbs some of the make good cost, even though the lease places the obligation on the tenant. The most common is when the landlord agrees to retain part or all of the outgoing tenant’s fitout because it suits the incoming tenant. In this case, the landlord waives the removal obligation for those elements, which reduces the tenant’s cost accordingly.
Another scenario involves incentive arrangements. In a competitive leasing market, landlords sometimes offer a make good contribution as part of the deal to attract a new tenant to the building. This contribution might be structured as a direct payment to the outgoing tenant, a reduction in the make good scope, or an agreement to complete certain works at the landlord’s cost. These arrangements are always negotiated and always documented in writing.
A third scenario arises when the building is being substantially refurbished. If the landlord plans to strip the floor back to shell for a major upgrade, requiring the outgoing tenant to complete a full make good to base building standard serves no practical purpose. In these cases, landlords will sometimes agree to a reduced scope that covers only the removal of items the landlord does not want to deal with, such as tenant-specific joinery, signage, or specialised services installations.
How Bond and Bank Guarantee Arrangements Work
Most commercial leases in NSW require the tenant to provide a bond or bank guarantee at the commencement of the lease. This security is held by the landlord and can be drawn upon if the tenant fails to meet their obligations, including the make good obligation. The bond amount is typically equivalent to three to six months’ rent, though this varies by lease.
At lease end, the bond functions as the landlord’s financial backstop. If the tenant completes the make good to the required standard, the bond is returned in full. If the tenant fails to complete the work, or completes it to a standard the landlord does not accept, the landlord can claim against the bond to cover the cost of completing or rectifying the work.
The practical implication is that the bond is at risk throughout the make good process. Tenants who complete the make good late, to a poor standard, or incompletely may find their bond partially or fully retained. The landlord’s claim against the bond typically includes the direct cost of the work plus a management fee, which means the amount retained can exceed what the tenant would have spent doing the work themselves. This is one of the strongest financial incentives for tenants to manage the make good proactively rather than walking away and letting the landlord deal with it.
Negotiated Cost Caps and Their Practical Effect
One of the most effective ways to manage make good financial exposure is to negotiate a cost cap at the start of the lease. A cost cap limits the tenant’s make good liability to a specified dollar amount per square metre, regardless of the actual scope required. This gives the tenant budget certainty and limits the financial exposure at lease end.
Cost caps are not standard in NSW commercial leases, but they are increasingly common in longer-term leases and in deals where the tenant has negotiating leverage. A typical cost cap might be set at $100 to $150 per square metre, which provides the tenant with a known maximum liability while still requiring them to complete the work.
Understanding what drives fitout pricing helps tenants negotiate a realistic cost cap. If the cap is set too low, the tenant may still face a shortfall between the cap and the actual cost, with the landlord claiming the difference. If the cap is set at a level that reflects the likely scope, both parties benefit from certainty and the make good process becomes a straightforward budget exercise rather than an open-ended financial risk.
What Drives Make Good Costs Up or Down
The cost of make good is driven by the same factors that drive fitout costs: labour, materials, access, complexity, and timing. Tenancies with extensive partitioning, custom joinery, multiple kitchen and bathroom installations, and heavily modified services will cost more to make good than simple open-plan spaces with minimal modifications.
Building-specific factors also influence cost. CBD buildings with restricted working hours, limited lift access, and strict waste management requirements cost more per square metre to make good than suburban buildings with ground-floor access and flexible scheduling. Premium buildings with high base building specifications require more precise restoration work, which takes longer and costs more than the standard patch-and-paint approach that works in less demanding buildings.
Timing is one of the most controllable cost factors. Tenants who engage early, obtain competitive quotes, and allow adequate time for the work consistently achieve lower costs than those who engage at the last minute and pay a premium for urgency. Choosing contractors based on price alone can backfire at the make good stage, where poor-quality work leads to failed inspections, rectification costs, and delays that trigger holding-over charges.
How Disputes Over Financial Responsibility Are Resolved
Financial disputes about make good typically arise in one of three situations: the landlord claims the work was not completed to standard and retains the bond to cover rectification, the landlord and tenant disagree about whether particular items fall within the make good scope, or the landlord claims costs that the tenant considers excessive or unreasonable.
The first line of resolution is negotiation. Most make good disputes can be resolved through direct discussion between the parties, particularly when both sides have access to clear documentation: the lease clause, the condition report, photographs of the premises before and after the make good, and quotes or invoices for the work completed.
Where negotiation fails, mediation is the next step. Many NSW commercial leases include a mediation clause, and even where they do not, NCAT and the courts generally expect the parties to have attempted mediation before proceeding to formal dispute resolution. Mediation is faster and cheaper than litigation, and most make good disputes are resolved at this stage because the cost of continued dispute exceeds the amount in contention.
Litigation is the last resort and is rarely cost-effective for make good disputes unless the amounts are substantial. Legal costs can quickly exceed the disputed amount, which is why early engagement, clear documentation, and good faith negotiation are so much more effective than relying on the legal process to resolve what is fundamentally a practical disagreement.
Managing the Financial Exposure from Day One
The most effective financial strategy for make good is to start managing it when the lease is signed, not when it expires. Negotiating the make good clause, documenting the condition report, understanding the likely scope, and budgeting for the eventual cost from the start of the lease means there are no surprises at the end.
A practical approach is to set aside a provision for make good as part of the overall occupancy cost. Allocating $10 to $20 per square metre per year over the lease term builds a fund that covers most make good scenarios without creating a financial shock at lease end. This approach also encourages tenants to think about make good when making fitout decisions during the lease, because every modification adds to the eventual cost of putting the space back.
Budgeting and planning for the full fitout lifecycle means treating the make good as part of the total cost of occupancy, not as an unexpected expense that appears at the worst possible time. Tenants who plan this way are better positioned to negotiate with their landlord, better prepared for the physical work, and less likely to end up in a dispute that costs both sides more than the work itself.
If you need a realistic estimate of what your make good will cost, we can inspect the premises, review the lease requirements, and provide a detailed scope and budget that gives you financial clarity before the process begins.
Call us on 1300 60 93 93