Blog - Commercial

04 September 2018

5 TIPS FOR MAKING GOOD IN YOUR OFFICE

Commercial real estate leasing is not a topic many people know too much about or understand until tasked with opening or moving office. It is also something that is bogged down in fine print and real estate jargon.

If you’re not paying attention, you may sign up for something you didn’t know that you agreed to in the first place. This is especially true when it comes to making good at the end of your lease.

What exactly is ‘making good?’

Both commercial and residential leasing is similar in that, at the end of your lease term, you are expected to ‘make good’. In simple terms, ‘making good’ means that, as a tenant, you need to return the office to your landlord in the same condition that it was in at the start of your commercial lease.

Remember those partition walls you took down before you moved in or the kitchen you had installed? Well, if you haven’t negotiated with your landlord to keep those things in place at the end of your lease, then you could be up for some serious expenses when it finally comes to moving out.

Five helpful tips for making good

To help minimise the potential headaches that can come with moving out of your commercial office space, here are five tips to keep in mind to tackle the make good process.

1. Avoid it if you can

Fully fitted out black and white commercial office space

The best way to make good at the end of your lease is to avoid having to do one!

When negotiating your lease with your landlord or agent, ask to have the clause removed from your lease.

Of course, this is much easier said than done.

In terms of bargaining power, if you are signing up for a long lease term (such as a 5-year lease with a 5-year option), part of your negotiation strategy could be to ask for the clause to be waived if you were to exercise your option.

2. Remember that keeping an existing fit-out can save you money

If you are leasing an office that has an existing fit-out in place, there’s a good chance that you will not be expected to make good at the end of your lease term if you keep things as they are.

Before you go wild contacting interior designers, consider all the costs involved. Not only will you need to pay to build your new fit-out, but when you decide to move on, you will also need to pay to remove it. You may also potentially have to replace whatever was there to begin with.

Keep in mind that some landlords may push for you to make good, even if you are moving into an existing fit-out. This means you’ll have to budget in the previous tenant’s make good obligations, and you won’t know if they also had to pay them as well! (Can anyone say ‘double dip?’) So, make sure you obtain professional advice before you sign on the dotted line.

3. Request make good guidelines

Builders standing in front of saw making good in a commercial office space

Be sure to ask your commercial real estate agent or landlord to provide you with their make good guidelines. These guidelines will outline the works your builder will be required to complete to fulfil your make good lease obligation.

Do not start any works without having this information or speaking to a professional first.

Remember, the costs associated with carrying out a make good can also vary greatly. The rule of thumb when it comes to commercial make goods is roughly $100 to $200 per square metre. This is important to remember down the line when budgeting for moving out costs. Use this handy online calculator to help estimate your make good costs.

Also, if you do power ahead with your own fit-out, ask your agent to recommend builders who specialise in commercial make goods. As with anything, three quotes are a must. Do not be shy with negotiations either – there are plenty of fit out companies out there who will compete for the work.

4. Consider a cash settlement

Another option is to negotiate with the landlord to leave your fit-out in place at the end of the lease. In this case, you may be able to arrange a cash settlement instead of having to carry out a make good.

If you do choose to head down this path, it is best to discuss the option before executing and signing off on your lease. Ideally, you’ll want to confirm the payout figure so that it can be incorporated into your contract.

In some (rare) cases, the landlord may determine that the fit-out has improved (or will improve) the future leasing potential of the commercial office space. In this scenario, he or she may be happy to leave things as they are with no additional payment necessary.

5. Obtain legal advice

Tenant speaking to two lawyers about making good in a commercial office

Commercial make good clauses are considered one of the most contentious parts of a lease.

There are many ways that the clause can be triggered. And the outcome will depend heavily on how well the make good has been negotiated and documented in the lease. So, it’s essential to get proper legal advice to iron out any kinks and to ensure the clause and each party’s obligations are crystal clear.

So, in summary, the number one tip for a make good is to negotiate it out of your lease completely. Don’t be shy about asking your agent; they have heard it all before. Who knows, the landlord may just agree to waive your obligation to make good from the lease. If you don’t ask the answer is always no!

Next step: looking for your new fresh space!

Now that we’ve shared our some tips to help with any potential issues you may have when moving out of your commercial office, let us help you find a commercial space for lease to expand your business. Speak to one of our friendly agents who will run through the best options for you!

 

This article was originally written in 2015 by Sean Doolan. It was updated in September 2018 by Adam Hennessy of TGC.

Date: 04 September 2018 Author: Adam Hennessy
Commercial

About the author:

Adam Hennessy

Adam Hennessy has been involved in the Sydney commercial real estate industry for over 16 years and is Director of Office Services at TGC. After owning Ray White Commercial Sydney Leasing, Adam joined TGC in January 2007 with a mandate to grow TGC’s office services portfolio.

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