Make-Good Obligations: Securing a Smooth End-of-Lease Experience

Every lease agreement contains make-good obligations that set out the condition in which the tenant must leave the property upon returning it to the landlord at the end of their term. Many tenants and landlords overlook these obligations when drafting a lease agreement because they seem less urgent than immediate concerns. However, this oversight can lead to costly disputes and litigation at the end of the lease term.

What They Are

Common make-good obligations typically include:

• Repairing any damage caused during the tenancy (excluding fair wear and tear),
• Removing tenant-installed items including fixtures, fittings, and equipment (unless otherwise agreed in writing),
• Returning the space to its original condition (sometimes referred to as ‘bare shell’ or ‘base building condition’),
• Thorough cleaning of the space to return it to the landlord in a clean and tidy

Tendency for Disputes

These obligations may appear straightforward at first glance. It is easy for disputes to arise, however, when the specifics of these obligations are vague and open to interpretation.

For example, in The Trust Company Pty Ltd v Commonwealth of Australia [2025] NSWSC 502, The Trust Company (as landlord) discovered contaminated soil on its site after the Department of Defence (as tenant) surrendered the lease. The Trust Company sought $20M from the Department of Defence after alleging non-compliance with make-good obligations to return land in good condition. Ultimately, the Trust’s claim was dismissed as the Court found that the contamination resulted from the Trust’s own redevelopment works and was not caused by the Department of Defence.

Similarly, in Auspods Holding Pty Ltd v MJ HQ Pty Ltd [2025] NSWDC 197, the landlord’s claim that the tenant breached make-good obligations by damaging a roller door was not accepted due to insufficient evidence that the door was undamaged at the commencement of the lease.

Both cases demonstrate how disputes can arise even from seemingly straightforward make-good obligations when the terms are not sufficiently specific or when proper documentation of the property’s condition at lease commencement is lacking.

Risk Mitigation

The most effective way to avoid disputes at the end of a lease is to carefully draft clear make-good obligations from the outset. When drafting the lease, ensure that the make-good obligations are as specific as possible. This includes clearly defining inclusions and exclusions, attaching floor plans, recording and photographing the property’s condition at handover, and defining acceptable wear and tear. During the tenancy, landlords and tenants should monitor any alterations and prepare periodic condition reports.

If you have any questions about drafting clear make-good obligations or require assistance with a lease dispute, please do not hesitate to contact us. We are here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.