In the realm of commercial real estate, a term that often surfaces during lease negotiations and property management discussions is "make good." This seemingly straightforward concept, however, holds significant implications for both landlords and tenants. Understanding the nuances of make good obligations is crucial for ensuring smooth transitions between tenancies and preserving the value of commercial properties. In this blog post, we'll delve into the high-level details of commercial property make good, shedding light on its significance, process, and key considerations.

What is a Make Good?

At its core, make good refers to the restoration or reinstatement of a commercial property to its original condition as specified in the lease agreement. When a lease term concludes or is terminated prematurely, tenants are typically required to return the premises to a state consistent with the condition outlined in the lease. This involves removing any alterations, additions, or improvements made during the tenancy and restoring the property to its original layout, fixtures, and finishes.

Importance of a Make Good

For landlords, the make good process is essential for maintaining the attractiveness and marketability of their properties. By ensuring that tenants restore the premises to its original condition, landlords can seamlessly transition to new tenancies without incurring excessive costs or delays associated with refurbishment. Moreover, make good provisions serve to protect landlords' investments by safeguarding the long-term integrity and value of their properties.

On the other hand, tenants benefit from clear make good obligations as well. Understanding their responsibilities regarding property restoration allows tenants to plan accordingly and avoid potential disputes with landlords upon lease expiration. By fulfilling their make good obligations, tenants can uphold their reputation as reliable and responsible occupants, which may facilitate future lease negotiations and foster positive landlord-tenant relationships.

The Make Good Process

The make good process typically begins well before the end of the lease term, as tenants must assess the scope of required restoration and plan accordingly. This involves conducting a thorough inventory of alterations and improvements made to the premises during the tenancy, documenting any deviations from the original condition outlined in the lease agreement.

Once the lease term nears its conclusion, tenants initiate the make good process by dismantling, removing, or rectifying any alterations or additions to the property. This may include dismantling partition walls, removing signage, replacing non-compliant fixtures, and restoring surfaces to their original state. It's imperative for tenants to adhere to the specifications outlined in the lease agreement to avoid disputes with landlords regarding the adequacy of the restoration efforts.

Upon completion of the make good works, landlords typically conduct a final inspection to assess whether the premises have been restored to the agreed-upon condition. If any deficiencies are identified, tenants may be required to rectify them before the handover of the property.

Key Considerations

While make good obligations may seem straightforward, several key considerations warrant attention from both landlords and tenants:

1. Lease Agreement Terms: Make good obligations should be clearly delineated in the lease agreement, specifying the extent of restoration required and any permissible alterations during the tenancy.

2. Documentation: Maintaining comprehensive records of alterations and improvements made during the tenancy facilitates the make good process and mitigates disputes between parties.

3. Cost Implications: Tenants should budget for make good costs well in advance, considering expenses such as removal, repairs, and reinstatement of the premises.

4. Negotiation Flexibility: Landlords and tenants may negotiate make good provisions to accommodate specific requirements or circumstances, such as the amortization of restoration costs over multiple lease terms.

Conclusion

In the realm of commercial real estate, the make good process plays a pivotal role in maintaining property integrity, facilitating seamless transitions between tenancies, and preserving the interests of both landlords and tenants. By understanding the significance, process, and key considerations associated with make good obligations, stakeholders can navigate lease agreements with clarity and confidence, fostering mutually beneficial landlord-tenant relationships and ensuring the long-term sustainability of commercial properties.