Common Misconceptions About Your Sydney Makegood Clause

19 May Common Misconceptions About Your Sydney Makegood Clause

At the end of your commercial lease, it is a lease obligation for you to carry out a makegood. This refers to the physical requirement to return your space to its original condition (it is not a monetary obligation). Unfortunately, this clause in your lease is rarely clear cut, subject to legal jargon and definitions, and it’s common for confusion to arise between tenants and landlords over makegoods.

There are a number of misconceptions about the makegood clause, that often come as a result of this confusion. Below, we’ll take a look at a few of them and ensure you’re receiving the correct information.

It’s all about the money

Actually, it’s not! The most important aspect is your obligation to return the space to its original condition, it’s a physical obligation to carry out certain tasks, so it’s important to negotiate the scope of work before talking about a settlement. Money can become a factor, but too many tenants are hung up on this and forget about their physical obligations.

The most important thing is that you understand your commercial lease, your makegood clause, and your obligations at the end of the lease. Sydney commercial leases can range from very descriptive to very vague, so if necessary, work with the professionals to ensure you understand your obligations. That way, you’ll avoid any nasty financial surprises down the track.

A makegood is a makegood… they’re all the same

This is absolutely incorrect. Every makegood is different because every lease is constructed differently, every fit-out is different and the whims of landlords are different. If you go in thinking that every makegood is identical, you’ll be in for a surprise. 

Every lease will have a different definition for the makegood clause, depending on the negotiations and interpretation of the scope of works. This is why it’s so important to make sure your makegood clause is clearly defined, and that you clearly understand your obligations.

Let’s just work it out at the end of our lease

Sometimes clients believe that ‘sitting’ on their makegood obligation is the best way to play it, however, it definitely is not. Landlords are holding bank guarantees and personal guarantees from you and if you don’t carry out the makegood in a timely manner, most leases stipulate that the lessor is entitled to take possession of the property and make good on your behalf and charge the costs as a debt to you. This will become more costly.

It is far more beneficial to work with your landlord to agree on what needs to be done and try and settle for the cost to do that work or physically do the work. Whichever is commercially cheaper. Niche Advisory (our parent company) can help with the negotiation.

When your obligations and the landlord’s requirements are set in written correspondence prior to embarking on the work, there will be no confusion at the end of your lease. That will save you money, and reduce lost time, stress, and frustration.

Let’s just do it, forget about the landlord

Absolutely not the stance you should take! This will only result in misinterpreting the scope of the strip-out, getting timelines wrong, and carrying out the incorrect works. And afterward, you find out that you and the landlord were on entirely different pages! That leads to delays and more frustration for both parties. 

Unrepresented clients tend to try and derive the makegood scope themselves and then act on that scope believing that they should have little to no interaction with the landlord (for fear of being struck down with a greater obligation) and should just get on with it. Approaching your makegood clause with this attitude is how you set yourself up for disaster! The longer you wait to discuss the lease with your landlord, the less time you will have to do the makegood.

If the scope isn’t agreed upon, it leaves an opportunity for the landlord to disagree on the completed work and force you into holdover (paying additional rent) until the makegood is complete. This is a position frequently desired by landlords, especially in this market where re-leasing the space is hard work.

What’s more, this can end up costing you a lot of money, because the landlord will be within their right to request repayment for any aspects of the office that were removed without their express consent. 

We don’t need professional help

Technically you don’t have to hire a tenant advisor, but professional advice is highly recommended. The makegood clause can be extremely finicky and difficult to navigate, particularly if you’ve left it to the end of your Sydney commercial lease, where you may not have a leg to stand on.

Professional help can get you out of a sticky situation; our market knowledge and expertise through the negotiation process means we can help put you in the best position to reach a satisfactory result. That may mean a lesser scope of work, smaller cash payment, or some sort of mutual agreement (such as moving into another property in your landlord’s portfolio).

Achieving these results is almost impossible without the help of a long-standing makegood provider like Makegoods.com.au.