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Commercial Real Estate: Make Good Clause Explained

Commercial Real Estate: Make Good Clause Explained

There is definitely a certain amount of expertise required to negotiate the Make-Good both at the start of and end of the lease.

The make-good provision in a commercial real estate lease is often the most contentious part of any Lease agreement. It is a standard inclusion to return a premises back to its condition when first rented, regardless of any improvements done in the meantime and with office fit-outs costing anything up to $2,000 a square metre if they include all the latest technology that could be a costly exercise.

Naturally, once the tenant decides to move out, the focus and funds are focused on the new premises fit out moving forward, leaving little time or money spent on honouring their current Lease commitments.

It really depends on how well it’s been documented in the lease because there are so many different ways a make-good clause can be triggered. The most important thing is having it in clear language and structure within the Commercial Lease Agreement, however, usually all over the place with a lot of different clauses, which can be pretty confusing, time consuming and sometimes expensive to unravel.

With the commercial leasing market now so tight, with rents rising and incentives falling, from the tenants perspective this aspect of the Lease can sometimes take a back seat to the main event, with a “Let’s cross that bridge when we come to it” approach.

From the Landlords perspective, it is often very difficult to predict what part, if any of the existing tenants fit out will be utilised by the incoming commercial property tenant.

More often than not, a Make Good cash settlement is the most commercial way of dealing with this matter which requires knowledge and experience to strike an acceptable agreement for both parties.

Having an experienced Commercial Asset Manager on your side can be invaluable in the Make Good process for Commercial Landlords. Reducing the stress and costs of potential litigation at the end of a lease is well worth the effort in securing a long term relationship with a Commercial Asset Expert.

The bottom line is – get the Make-Good Clause right at the start so you don’t have to spend time and money arguing about it at the end. It could save you or make you considerable amounts of money, which can offset new tenant incentives or just improve your overall asset performance.

Feel free to contact us to discuss your current Make-Good Clause.

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