‘Make good’ provisions require a tenant of commercial premises to, at the very least, return premises to their landlord in a similar condition to that in which they were found. In some cases, make good involves a requirement for a tenant to strip back the property to base building (or bare shell) condition.

Disputes centred on these obligations arise frequently between landlords and tenants. Such disputes can be lengthy and acrimonious.

This article unpacks 4 frequently asked questions surrounding make good disputes:

  • How do make good disputes arise?

Make good disputes most frequently arise because tenants have not properly understood their obligations.

Typically this occurs either because tenants have not taken the time to properly consider the lease agreement or because the make good provision is drafted in a way that is difficult to construe and may be interpreted in any number of ways.

To illustrate, a make good dispute might arise because a tenant thinks that they simply have to return the property to the landlord in the same/similar condition to that in which they found it, when the lease stipulates that they actually have to strip the property back to a ‘bare shell’ for a new tenant.

For more information about how make good disputes arise and how to properly fulfill these obligations at the end of a lease, read this article (hyperlink to ‘How to Make Good at the End of a Lease’).

  1. How are make good disputes resolved?

Informally

Most commercial leases contain dispute resolution provisions.

These provisions commonly outline how parties should approach dispute resolution should an agreement arise and usually involve a series of civil negotiations and discussions, such as negotiation in good faith between the parties, mediation, conciliation or arbitration.

If possible, reaching an amicable agreement can mean that all parties to the lease avoid costly and time-consuming litigation.

Formally

If the parties cannot reach agreement, more formal processes may be required.

For commercial leases, the common law will apply and the relevant state based court (such as the Local Court or District Court in New South Wales) would apply.

For retail leases, the relevant retail leasing legislation in each state sets out the correct processes as follows:

State Applicable Legislation Relevant Bodies
VIC The Retail Leases Act 2003 (Vic)
  • Disputes are first referred to the Victorian Small Business Commissioner for mediation.
  • Disputes that remain unresolved are then referred on to The Victorian Civil and Administrative Tribunal
QLD Retail Shop Leases Act 1994
  • Complaints/disputes to be lodged with the Queensland Civil and Administrative Tribunal
  • Mediation, with an appointed independent mediator, is recommended to parties first under the legislation (although there is no obligation to attend mediation conferences). The Tribunal will decide matters that cannot be resolved via mediation.
TAS Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998
  • If negotiation/discussion between landlord and tenant fail, issues may be referred to the Office of Consumer Affairs. This body will assist parties to reach a mutually agreeable solution.
  • If disputes remain unresolved, they will then be referred to the Monitoring Committee.
SA Retail and Commercial Leases Act 1995
  • Disputes first referred to the Small Business Commissioner for mediation
  • If they remain unresolved, they then fall under the jurisdiction of the Magistrates’ Court
  • The District Court may also have jurisdiction where the amount of money in dispute exceeds $40,000
WA Commercial Tenancy (Retail Shops) Agreements Amendment Act 2011
  • Parties may apply to the Small Business Commissioner for assistance.
  • The Commissioner may refer parties for mediation.
  • Depending on the nature of the dispute, some parties may be able to obtain a certificate from the Commissioner allowing them to escalate the matter to the State Administrative Tribunal
NSW Retail Leases Act 1994
  • It is mandatory for parties to first attempt mediation processes implemented by the Small Business Commissioner
  • If mediation fails parties may then make an application to have their matter heard by the NSW Civil and Administrative Tribunal
ACT Leases (Commercial and Retail) Act 2001
  • All disputes are resolved by the Magistrates’ Court
  • Decisions of the Magistrates’ Court may be appealed to the Supreme Court

Appointment of Quantity Surveyors

Quantity surveyors can become involved in retail lease disputes when parties cannot agree about the amount of compensation payable or make good required. Quantity surveyors will assess realistic replacement, removal and fit-out costs.

The retail legislation in each state allows parties to make an application to the Australian Institute of Quantity Surveyors (AIQs) to have a surveyor appointed.

Both parties bear the costs of appointing a quantity surveyor equally and surveyors must be appointed prior to any work beginning. For example, if your make good provision required a tenant to strip the premises back to a ‘bare shell’ and the tenant failed to do so, a quantity surveyor would need to assess the cost of removing the fit-out prior to the commencement of that work.

Does the landlord do the work or does the tenant do the work?

If a tenant fails to meet their make good obligations, the landlord will generally have the work done and will pass on the costs of the work to the tenant, after notifying the tenant of their intention to do so. The lease will usually regulate the time frames surrounding this process.

It is also possible for parties to reach cash settlements when tenants fail to meet make good obligations. For example, if a tenant fails to make good a cash settlement may be negotiated with the landlord in lieu of the tenant completing the make good.

Key Takeaways

  • Make good disputes sometimes arise due to parties misunderstanding the nature of the make good obligations
  • Disputes can be resolved either via alternative dispute resolution (such as negotiation or mediation) or by the relevant Tribunal/Court in each state or territory.
  • If there is a dispute as to the amount of compensation payable, parties may apply to appoint a quantity surveyor