“Make good” covenants require a commercial tenant to restore or yield up a leased premises in a specified condition at lease end. In Australia, make good clauses typically oblige tenants to remove partitions, fixtures, and fit-out and reinstate the space to its original state (often an “empty shell” or base building condition). This is analogous to dilapidations in the UK and other common law. By contrast, some global markets (e.g. parts of Europe and Asia) use inclusive leases that effectively build repair costs into the rent and avoid end-of-lease reinstatement. Traditionally, Australia followed the UK model, with tenants contractually responsible for repairs and reinstatement at lease expiry, making the lease more landlord-favorable. However, over the past decade there has been a notable shift in how make good obligations are handled in practice.
Several factors have driven the evolution of make-good covenants since the 2010s:
These trends are reshaping both the content of lease agreements and the behavior of landlords, tenants, and property managers when leases end.
One clear trend is the increased reliance on cash settlements instead of requiring tenants to perform the make-good works. It is becoming common for landlords and tenants to negotiate a financial settlement at lease end, whereby the tenant pays an agreed sum and is relieved from performing some or all make-good. Australian legal commentators note “cash settlements are being used increasingly”[1] as an alternative to tenants physically undertaking make good. The typical scenario is that as lease expiry nears, the tenant and landlord agree on a payment figure, and the tenant in effect pays the landlord to make good. This allows the tenant to vacate on the last day and leave the fit-out in place, avoiding the rush and cost of reinstatement works. From the tenant’s perspective, a cash settlement can be advantageous if they have left make good too late or misjudged the cost. It lets them “walk out” without doing the work, as long as the space is left clean and tidy. For landlords, a settlement often means they regain possession faster and can either reuse elements of the outgoing tenant’s fit-out or begin upgrades for a new tenant immediately.
Multiple industry sources confirm this growing preference for monetary settlements. A Colliers leasing expert in New Zealand remarked in 2018 that it “is common for the parties to agree to a monetary settlement instead of the tenant completing the physical reinstatement works.” [2] Likewise, Australian property lawyers observe that some leases now even explicitly include a clause permitting a cash settlement as an option, in addition to the standard make-good clause. This gives both sides flexibility: if no settlement is reached, the default make-good obligations still apply. Where a cash settlement is used, it’s critical to define whether it releases the tenant from all obligations or if certain minimal tasks (like removal of loose property or cleaning) are still required.
In parallel, there’s a trend of landlords accepting properties “as is” for re-letting, especially if the existing fit-out can help attract new occupants. Rather than enforce a full strip-out, some landlords choose to retain the outgoing tenant’s fit-out for a new tenant, a strategy often linked to speculative fit-outs (spec-fit). By keeping quality partitions, fixtures, or furnishings in place, landlords can offer a “plug-and-play” office to incoming tenants, saving on downtime and fit-out costs.[3] This practice has gained traction in prime office markets: “higher end landlords [are] incorporating reuse and recycle of fit-outs in their policy,” resulting in potential savings of “hundreds of thousands of dollars” and avoiding the 10–15 week lead time for constructing a new fit-out. In other words, “landlords…can access or re-let the premises sooner” and the next tenant can benefit from an existing fit-out. This approach aligns with the rise of speculative suites (spec-fits): pre-fitted, move-in-ready spaces offered to the market – which many commercial landlords have adopted in recent years to secure tenants faster in competitive markets. By not enforcing make good to a bare shell, the landlord essentially uses the previous tenant’s fit-out as a marketing asset (sometimes providing the outgoing tenant a payment for any fixtures that become the landlord’s property).
Importantly, the ability to negotiate away make-good obligations depends on the tenant’s bargaining power. Large corporate and government tenants have, in some cases, managed to eliminate make-good clauses entirely. As one property consultant noted, “larger tenants are more likely to use their bargaining power to opt out of make good clauses altogether, by agreeing with their landlord to hand back the premises as is.” [2] A number of major banks and government departments have successfully “gone down this route” of lease negotiations that omit reinstatement requirements, meaning they can simply vacate without further liability. By contrast, smaller private tenants usually lack this leverage. They must either comply with make-good or hope to negotiate a modest cash settlement. Nonetheless, even for standard leases, landlords increasingly see merit in taking control of the make good process themselves. Landlords often prefer to take ownership of the make-good process since they have experience with strip-outs and can do it more efficiently; thus “they often agree financial settlements with tenants”,[4] effectively being paid to undertake the make-good and giving them freedom to upgrade the space as they see fit. This illustrates a general industry shift: rather than insist on contractual enforcement of every tenant repair, many landlords will strike a commercial deal that benefits both parties (the tenant avoids hassle; the landlord gets cash and flexibility).
Overall, statistics on make good outcomes are largely anecdotal, but the consensus is clear. Ten years ago, it was more common for tenants to perform end-of-lease dilapidation works; today, financial settlements and “landlord-performed” make good are the norm in many cases. For example, one source notes U.K. average dilapidations cost (often settled in cash) is about £7.27 per square foot, [5] highlighting that such obligations represent a significant financial exposure that tenants now plan for and negotiate on, rather than blindly accepting a blank-check liability. In Australia, while precise figures are not published, the prevalence of cash in lieu of works is evidenced by numerous guides and checklists advising tenants to negotiate a “make good settlement” or a cap on make good costs early in the lease. [6] This trend reflects a more pragmatic, financially-driven approach to lease end obligations, moving away from strict enforcement of covenants and toward mutually beneficial agreements.
Hand-in-hand with these practical shifts is an increasing emphasis on sustainability and waste reduction in the make-good process. The commercial real estate industry has recognised that the traditional make-good cycle: tenant installs a fit-out, then strips it out and discards it at lease end – is “notoriously wasteful”. Frequent office churn leads to enormous volumes of material being sent to landfill. A study in Sydney found that each year about 25,000 tonnes of office strip-out waste are generated in the CBD alone, with roughly 79% of removed materials ending up in landfill.[7] Such statistics, coupled with environmental targets, have spurred initiatives to “design out waste” and keep materials in use longer.
In 2011, major Australian landlords and stakeholders formed the Sydney Better Buildings Partnership (BBP) – including institutional property owners, the Property Council of Australia, and firms like JLL and Investa – to improve sustainability in building management. One focus has been the end-of-lease make-good. In 2016 the BBP introduced a Green Lease standard, and by 2020 about 50% of Sydney CBD offices had integrated green lease clauses into their agreements. These often encourage recycling of tenant fixtures or impose obligations on both parties to minimize waste during make-good. RICS also published “Greening Make Good” guidelines (now incorporated into the 3rd edition of Make Good Australia RICS Practice Information note[8]) to promote reuse of tenant installations and a more circular approach to office fit-outs. For example, outgoing tenants might fulfill their obligations not by scrapping all additions, but by facilitating the transfer of furniture to the landlord or a new tenant. Landlords, in turn, may agree to upgrade only what’s necessary rather than automatically gutting the space.
Early results were promising: pilot “green make-good” projects under the BBP were achieving 50–60% recovery of materials by 2017, significantly better than business-as-usual. Some premium landlords have publicly committed to reuse strategies.
John Goddard FRICS, lead author for RICS Practice Note, Make Good Australia, notes that “things are improving, especially among higher end landlords who are incorporating reuse and recycle of fit-outs in their policy.”[3] He gives the example of Grosvenor Place in Sydney, which as part of a net-zero sustainability target is experimenting with keeping certain tenant fit-out elements for the next occupant. By reusing fit-outs, landlords can save significant money and time, and prevent perfectly good materials (like relatively new carpet, lighting, or partition walls) from being trashed. This sustainability angle reinforces the earlier trend: it provides another incentive for landlords to prefer a negotiated “leave it and pay” solution rather than demanding a full strip-out. In short, environmental best practice is aligning with commercial interest, leading to more instances where the make-good is reduced or waived if reuse is feasible.
It’s worth noting that in markets outside Australia/UK, leases often already avoid make good for sustainability reasons by structuring responsibilities differently. For example, many European landlords deliver space and handle end-of-lease renovations themselves (recovering costs via service charges or higher base rent), to control quality and reduce piecemeal alterations.[9] Australia is moving in that direction culturally, if not always contractually, by having landlords voluntarily assume the make-good process in exchange for a settlement.
“global markets have adopted inclusive leases that remove the need for dilapidations claims, with repair costs generally included in rents”
This leaves the landlord to manage those works and risks. The trend in Australia doesn’t (yet) “include it in rent” across the board, but the outcome is similar in many cases: the tenant’s make-good obligation is monetised and the landlord decides whether to reuse, refurbish, or dispose of the fit-out according to their sustainability and re-letting strategy.
The evolution of make good practices has been paralleled by adjustments in lease drafting and legal approaches. Commercial leases a decade ago often had vague or broad make-good clauses (e.g. requiring return of premises in “good condition”) which led to uncertainty and disputes over interpretation. Modern leases are increasingly explicit about end-of-lease condition to provide certainty. Some large landlords now use highly prescriptive make good clauses, specifying in detail the tasks or standards required (down to paint colors, cleaning requirements, etc. within a landlord drafted make good guide of their own). This micromanaged approach benefits landlords by eliminating ambiguity – tenants know exactly what is expected. However, it can lock tenants into precise obligations and limit flexibility to negotiate later. As a result, sophisticated tenants may push back against overly strict clauses during negotiations.
In Australia, each state and territory’s property laws and court decisions also shape make-good outcomes. For instance, New South Wales law (Conveyancing Act 1919, s.133A) limits a landlord’s damages for breach of a repair covenant to the reduction in the property’s value (the “diminution in reversion” principle). This is somewhat tenant-friendly, preventing exorbitant claims if the loss in value is minor. (Several other states don’t have an equivalent statute, so common law applies.) A notable case often cited is Tabcorp Holdings v Bowen Investments (2009), where a tenant in Victoria performed unauthorised renovations and at lease end the High Court made them pay full restoration costs, rejecting the argument that damages should be limited to the diminution in property value. [8] This case showed us that if a make-good obligation is framed as an absolute requirement (not just “repair”), tenants can be on the hook for full reinstatement costs regardless of economic waste. Such precedents have prompted parties to draft clearer clauses: leases now often distinguish between general repair obligations versus specific reinstatement duties for alterations or fit-outs.
Lawyers frequently advise inserting caps or agreed sums for make-good into the lease to avoid later fights.[10] For example, a tenant might negotiate that their total make-good liability will not exceed a fixed dollar amount or will be computed by a formula at lease end. Alternatively, parties may include an option for the landlord to require a payout in lieu. According to one law firm, “the solutions are simple: draft make good clauses better, or allow the parties to agree a cash settlement in lieu of make good obligations”. We are seeing both of these solutions in today’s leases. Government leases and some major commercial leases now explicitly state that no make-good is required beyond normal wear and tear, or they include a schedule listing each tenant-installed item with agreed treatment at lease end (remove, remain in situ, or landlord to pay tenant for it). Such “make good schedules” during lease drafting can pre-empt disputes by clarifying ownership of fit-out elements and the plan for each at lease expiry. This level of foresight was less common a decade ago but is popular in high-end leases.
In comparing government and private commercial leases, government tenants often insist on more tenant-favorable make-good terms. Being typically large, long-term tenants (e.g. federal agencies leasing whole buildings), they can negotiate minimal to zero make good obligations. As noted, some government departments have arranged leases with “no make-good” on exit – effectively treating the fit-out as the landlord’s responsibility or as part of the deal. Government leases also tend to undergo rigorous value-for-money analysis, so if a make-good is required, the costs might be anticipated and budgeted from the start (public sector accounting standards now require booking a provision for make-good costs on new leases)[11]. In practice, this makes agencies keenly aware of the liability and thus more likely to negotiate it down or eliminate it in exchange for slightly higher rent or other trade-offs. In contrast, a small private business leasing a shop or office usually must accept a standard make-good clause (return the property in the condition it was provided, except fair wear and tear). Such tenants may only have the option to discuss a cash settlement at the end if the landlord is amenable.
Another difference is that government leases may incorporate “green lease” provisions as a policy matter. The Australian Government pioneered the Green Lease Schedule for its own leases, embedding energy and sustainability targets. These can include commitments to reduce waste and could influence make-good by, for example, requiring the tenant to produce a de-fit plan that maximizes recycling. Meanwhile, private sector leases are catching up via industry-led standards like the BBP’s green lease template. Both government and large corporates also tend to document the property condition carefully at lease start, given the stakes. It’s not uncommon for a government lease to have a detailed Schedule of Condition attached, often prepared by a professional surveyor or building consultant, to clearly record the pre-lease state (so that the tenant isn’t later held responsible for pre-existing wear). Smaller private deals, however, often skip this formality.
Whether or not a tenant ends up performing make-good works, a critical piece of the puzzle is the documentation of the premises condition. A well-prepared Schedule of Condition (SoC) pre-commencement condition schedule, or Premises Condition Report, at the lease commencement can protect both landlord and tenant by establishing a baseline. Over the last decade there has been growing awareness of the importance of this documentation – yet practices vary widely. Many property managers still forgo a formal Schedule of Condition, instead relying on informal methods (e.g. a set of dated photographs, their own mobile phone photos, or even no record at all beyond a walkthrough). This can be problematic. Without an agreed record of starting condition, end-of-lease negotiations often devolve into disputes over whether damage was “already there” or caused by the tenant. Often, there are no clear records of the property’s condition at the start of the lease. This can lead to debate over whether damage or alterations took place before or after the tenancy commenced. This lack of evidence puts both sides at risk. The tenant might be unfairly charged for pre-existing issues, or the landlord might find it hard to prove the tenant’s dilapidations or make good obligation.
In high-value leases today, it is common for the parties to engage a qualified building consultant or surveyor to prepare an independent Schedule of Condition, which is then attached to the lease. This report typically includes hundreds of photographs, written descriptions of each building element’s condition, and sometimes video. Modern SoCs may also incorporate floor plans marking areas of damage, a grid plan for large warehouse concrete floor slabs, and even technical test reports (e.g. confirming HVAC or electrical condition at move-in). Such thorough reports give a definitive benchmark for make-good: the tenant is only required to maintain or restore to that documented state, not any better. Indeed, many leases explicitly tie the repair obligation to the “condition as evidenced by the Schedule of Condition”, capping the tenant’s liability at that baseline. This is sometimes called the “ceiling” model of SoC (it sets an upper limit on required condition). There is also a “floor” model (SoC used to ensure a minimum condition is upheld) for situations like older buildings, but the principle is the same: clarity through documentation.
However, outside of large institutional leases, many landlords/property managers opt for less formal documentation. They might take a few quick photographs of the premises at handover and file them away without a comprehensive survey. In some cases, no condition report is prepared at all – especially for short-term or small leases – under the assumption that normal wear and tear won’t be contested. The Queensland Small Business Commissioner even advises that at minimum the parties should take date-stamped photos at start and end of a lease, if they don’t do a formal report.[6] Insufficient evidence will cause issues. All alterations during the lease should likewise be documented (e.g. via fit-out approval documents or Deeds of Variation) to track new obligations that arise mid-term.
The reality is that quality of Schedules of Condition remains “inconsistently executed” across the market. At the 2025 RICS dilapidations conference, surveyors lamented that too few practitioners invest the time to do SoCs properly, even though a good SoC can shape the entire tone and financial outcome of an end-of-lease claim. Common pitfalls include SoCs that are too cursory (missing areas of the property), lack photo evidence for certain defects, or are not appended to the lease formally (making them legally ineffective). There have been calls for professional standards or guidelines to raise the consistency of condition reporting. In the interim, property managers are turning to technology to streamline the documentation process.
Advances in technology have made it easier for property managers and even tenants to conduct their own documentation of conditions, but also pose a challenge to traditional building surveyors. Smartphone apps and inspection software now allow users to create photo-embedded inspection reports on the go. Tools like CamReport enable anyone with a mobile device to walk through a space, take geotagged photos, annotate issues, and generate a report that mimics a professional schedule of condition. These tools have lowered the barrier for non-surveyors to produce their own detailed records. For example, a facilities manager could document a small office’s condition themselves, rather than hiring an external surveyor. There is a burgeoning market for such property management apps.
Despite this, professional building surveyors are far from obsolete. Industry consensus is that while digital tools are transforming the process, they do not replace the surveyor’s role. The expertise of a chartered building surveyor remains crucial in complex or high-stakes situations: they understand building pathology (to spot less obvious defects), relevant law, and how to quantify claims. Surveyors act as impartial experts whose reports carry weight in legal disputes. A property manager with an app might document visible damage well, but might miss subtle issues like non-compliant installations or gradually developing defects. Today’s surveyors are expected to “navigate not only the technical, but the human, commercial, and technological dimensions” of make good. This means using the new tools to work more efficiently, but also providing strategic advice in negotiations, something an app alone cannot do.
In fact, the proliferation of DIY documentation can be a double-edged sword. On one hand, it is improving record-keeping – even a set of amateur photos is better than nothing to establish condition. On the other hand, if both parties each have their own “informal” photos with no agreed formal record, disputes can still arise over interpretation or authenticity. A seasoned surveyor can help by producing an agreed schedule both sides sign off on, removing doubt. There is also the matter of consistency and quality control: RICS is considering formal guidance because time and again SoCs are drafted without key components leaving room for ambiguity. A tech solution is only as good as the user and template; if a property manager neglects to photograph a ceiling or inside an AC closet, that omission could later become a loophole in the make-good discussion.
We are likely to see greater collaboration between surveyors and technology. Surveyors increasingly use tablets and software on-site to speed up report writing, and landlords/tenants benefit from faster turnaround and richer data (like 360-degree photos, digital models, etc.). The role of the surveyor may shift more towards analysis and negotiation – interpreting the data and advising on fair settlements – rather than the manual task of recording every scratch on a wall (an app can assist with the latter). The market for make-good documentation tools will continue to grow, especially as property portfolios seek to cut costs. But given the financial stakes (make-good liabilities can be in the hundreds of thousands of dollars for large offices), most prudent landlords and tenants will still involve professionals for significant leases. In summary, technology is an enabler for better make-good practices, while building surveyors are adapting to ensure their expertise remains key in interpreting the results and steering the parties toward equitable solutions.
Over the last decade, make good covenants in commercial leases have trended toward greater flexibility, clarity, and sustainability. Landlords and tenants are increasingly settling make-good obligations via cash payouts or pre-agreed terms, rather than sticking to the blunt requirement of reinstating everything. This shift is driven by mutual benefits – tenants avoid last-minute headaches and limit their liability, while landlords gain control to upgrade or re-let space faster. In many cases, the outcome is effectively that the landlord handles the make-good (often incorporating modern, eco-friendly practices) and the tenant simply finances it partly via a settlement.
Industry statistics and observations support this evolution: financial settlements have become common practice, and major tenants even negotiate lease terms to remove make-good altogether in some instances. Concurrently, there is a stronger push to reduce waste from end-of-lease strip-outs, as evidenced by initiatives in Australia’s office sector targeting higher reuse and recycling rate. This green perspective dovetails with the trend of leaving fit-outs in place for the next tenant when feasible, rather than insisting on a return to bare walls.
However, these more modern approaches require good documentation and communication. A recurring theme is that clear, upfront agreements and records are essential to avoid disputes. Stakeholders are encouraged to “get it in writing” – whether through detailed make-good schedules in the lease or professional schedules of condition at commencement. Unfortunately, many smaller leases still lack these safeguards, and property managers sometimes rely on informal notes or photos. The role of professional advisors remains critical: engaging property lawyers, tenant representatives, and building consultants at the start and end of a lease can save significant costs by preventing misunderstandings. In fact, all three of those expert roles (legal, brokerage, and surveying) are increasingly collaborating to make the make-good process smoother. Industry bodies like the Property Council of Australia and RICS have published guides to demystify make-good and promote fair outcomes.
To summarise the current state: Make-good obligations are no longer seen as an immutable burden, but as another lease term to be negotiated and managed strategically. Over the past ten years, I have seen a clear movement in Australia (reflecting a broader global shift in similar markets) toward pragmatism – reducing onerous obligations when they don’t make commercial sense, and finding solutions that reduce cost, time, and waste for all involved. Landlords have shown greater willingness to accept spaces “as is” (especially if they plan to refit or upgrade anyway) and to reach settlements that expedite turnover. Tenants, for their part, are more educated now about make-good: savvy tenants plan for it from day one, negotiate caps or exclusions, and keep records diligently. In the coming years, we can expect these trends to continue, with possibly more formalisation (e.g. standard clauses allowing cash settlements, or even legislative guidance on fair make-good practices). The involvement of major industry associations and the development of digital tools will further streamline the process. Ultimately, the goal shared by all parties is to avoid the costly dispute scenario and instead handle end-of-lease obligations in a commercial, efficient, and equitable manner.
CJLM
Craig is a Fellow of the Royal Institution of Chartered Surveyors and one of Australia’s most experienced building consultants. He is author of The Building Detective and Chair of the RICS Member Engagement Group (QLD).