Make Goods

A Make Good is a mandatory obligation of almost every office, commercial and industrial lease in Australia. Simply put, it refers to returning a property to the condition it was in at the start of your lease, subject to fair wear and tear.

Camino Property Services has been created to provide best-in-class, full life-cycle Make Good services. Our nine step process ensures that we can provide you with a comprehensive service. We will remove the stress from the process so that you can focus on running your business.

We have undertaken over 50 Make Goods and saved our clients many millions of dollars. Our service includes both Make Good works and negotiations with your landlord.

Camino Property Services has been created to provide best-in-class, full life-cycle Make Good services. Our nine step process ensures that we can provide you with a comprehensive service. We will remove the stress from the process so that you can focus on running your business.

We have undertaken over 50 Make Goods and saved our clients many millions of dollars.

Our service includes both Make Good works and negotiations with your landlord.

Camino Make Good Process

  1. Decision

It goes without saying that the first part of the process is either the tenant or landlord making a decision to terminate or not extend a lease. Commercial, operational and strategic factors may play a greater or lesser part when making this decision.

What’s most important in this first step of the process is that the decision be supported by the rest of the business and that parties are cognisant that once a decision is made to exit a property it becomes very difficult to change course. Relationship impacts and immediate marketing activities by the landlord come into play.

  1. Baseline Parameters

This is a crucial part of the process and a good and thorough job in this part of the process can lay the foundations for a successful Make Good. If done well, this will give us a very good indication of what we’re faced with.

The most important part in this step is reviewing the lease in order to understand and quantify what the Make Good obligations are. For example:

  • Do we have to remove racking?
  • If so, how do we remove racking?
  • Do we core drill and remove racking bolts, or do we cut bolts and fill the racking holes with epoxy?
  • How do we remove line marking? Does line marking need to be shot blasted or can we paint line marking over with grey paint?
  • What happens with the office fit-out?
  • Do we need to remove the office fit-out and return the offices to base building conditions?
  • Do we need to demolish and remove all partitions, fixtures and fittings, joinery, unwanted office furniture?
  • Do we need to remove all redundant power, data and lighting?
  • Do we need to reinstate carpet, ceilings, services, etc.?

The lease also needs to be reviewed to ascertain what our Repair and Maintenance obligations were during the lease. Failure to comply with our Repair and Maintenance obligations and to maintain the requisite servicing records during the lease may impact the results of the Make Good.

An important consideration during the review of the lease is whether there is a Bank Guarantee in place. The presence of a Bank Guarantee of course strengthens the position of the landlord who can call on the Bank Guarantee if necessary.

Conversely, not having a Bank Guarantee essentially puts the landlord and tenant on an equal footing for the negotiations that are to follow.

Another key element of this part of the Make Good process is the existence of a Condition Report documenting the state that the property was in at the start of the lease.

Having a Condition Report protects the interests of both the landlord and the tenant and could be referred to as either an insurance policy of some sort or a risk mitigation tool.

A Condition Report effectively becomes the baseline with which the state of the property is measured against at the end of the lease, subject to fair wear and tear. It plays a large part in clearing up what damage was caused by the tenant, and what damage predates the tenant’s occupancy of the property.

The existence of any other reports such as an Environmental Report also need to be ascertained, reviewed and documented at this stage of the process. Likewise, the landlord and tenant need to determine whether any landlord or tenant works were undertaken during the lease and as such what Make Good arrangements were made for such works.

Likewise, as part of this step the tenant needs to know what Make Good financial provision is being accrued for in the Balance Sheet. While this amount should never be communicated to the landlord, it should also not be divulged to other members of the Make Good stakeholder group. The amount though needs to be known by the person running the Make Good as it will serve as the most compelling barometer of whether the Make Good is considered a success or not.

  1. Notification

The third step in the Camino Property Services Make Good process consists of notifying the landlord of the tenant’s intention to vacate and Make Good the property. While this step could conceivably be the second step in the process, at Camino we believe it should be done once the tenant is not only clear that they are certain they intend to exit the property, but just as importantly that they have reviewed the lease and other key documents and have a strong understanding of their Make Good obligations.

A strong understanding of the tenant’s Make Good obligations prior to notifying the landlord of the intention to exit will allow the tenant to put forward a stronger and more knowledgeable initial Make Good position to the landlord.

In the case of the tenant, this part of the process requires the tenant’s representative to notify the relevant areas of the business that the property will be exited and made good.

Indicatively, the following areas of the business need to be notified once a decision that a property will be exited and made good:

  • Site manager and key site staff;
  • Procurement team for disconnection of electricity and telephones, and ceasing of such services as waste removal, pest control, vending machines, etc.;
  • IT for removal of IT equipment;
  • Corporate Comms for removal of signage and what will be done with signs;
  • Relevant department for removal of security equipment;
  • Finance that Bank Guarantee will have to be returned if one exists;
  • Finance (including Accounts Payable) to have advance warning that in due course rent and outgoings’ payments will cease
  1. Agree Scope

This is where the Make Good begins in earnest and communication and negotiations between the landlord and tenant are a constant and regular feature until both parties agree exactly what the scope of the Make Good will be.

Typically a landlord will submit to the tenant a scope of the Make Good works required. Best practice dictates that the tenant reviews this scope with the site manager, but more importantly, with staff that have been based at the site for a number of years and have an intimate knowledge of the property.

As part of this review the tenant’s Make Good representative must inspect the property in order to view the state of the property, and the landlord’s scope, against the actual state of the property.

The benefits derived from physically inspecting a property, and meeting with onsite with the staff, are worth every penny spent in travelling to the said property.

Typically there will be numerous iterations until both parties agree on what Make Good works are required. It is crucial that a professional and amicable agreement is reached before proceeding to the next stage in the process.

de

5. Make Good Costs

Once the landlord and tenant have agreed on a Make Good scope, the next step in the process is to quantity the costs of those Make Good works. Typically the landlord will provide their own costing of the Make Good works.

Best practice dictates that the tenant solicit three separate Make Good quotes to compare against the landlord’s estimated Make Good costs. Generally the quotes the tenant receives will be less than the landlord’s costs for the Make Good works.

Once the tenant has their own three quotes plus the quote from the landlord, the tenant needs to decide whether they want to proceed and carry out the works, or make a financial proposal to the landlord in exchange for doing the works.

Factors to take into account when deciding whether to carry out the works or make a financial payout proposal include:

  • Monetary value of works/payout;
  • Likelihood of satisfying landlord’s quality requirements for the works;
  • Proximity of lease end date;
  • Impact on operations; and
  • Impact on resources.

Generally the best course of action is to agree a favourable payout rather than do the works. Works should only be done when we can’t agree on such an outcome.

By agreeing a favourable payout, (1) the tenant does not need to dedicate time and resources to carry out the works, and (2) the landlord can undertake the works with whom and how they see fit.

If a decision is made to make a payout, then the amount of the payout to put forward to the landlord needs to be determined.

Payout amount could be a combination of:

  • Lowest quote;
  • Average or median of three quotes;
  • Arbitrary amount; or
  • Landlord Estimate (Almost always likely to be higher than tenant provided quotes).
223
  1. Agree Approach

In this step of the process the tenant will put forward a proposal to the landlord. The proposal will generally be one of three:

  1. To carry out the agreed works;
  2. To make a financial payout in lieu of; or

A combination of works and payout.

If a financial proposal is made the tenant will need to put this in writing along with the justifications for the amount being offered. If the amount of the payout to be offered differs from the landlord’s estimate, the tenant must provide reasons for this. The reasons for the amounts being offered will need to be supported by the quotes solicited in step 5 of the Camino Make Good process.

The Make Good provisions of a lease assign the landlord the absolute discretion in deciding how they want the Make Good carried out.

If the landlord agrees to a payout then the parties will document the payout in the form of a binding Letter of Agreement that is to be signed by both parties.

de1
  1. Make Good Works

If Make Good works are required the tenant will need to decide which Make Good contractor will undertake the works. If necessary, more than one contractor can be appointed due to such factors as quantity of work, specialised nature of works or the time pressures of having the work completed by a certain date.

In order to align expectations, one of the key activities during this part of the process should be a joint inspection of the property between the landlord and tenant. The objective here is to confirm all the works that need to take place, and how they are to be carried out. Reaching agreement will reduce the likelihood of disputes down the track.

Generally Make Good works commence around four weeks from the expiry of a lease. This makes this an ideal time to once again remind the wider business that a Make Good is underway and that the tenant will be exiting the property shortly. This will serve as a reminder to the relevant areas within the wider business that all relevant services and actions need to take place prior to the expiry of the lease.

Indicatively, the following areas of the business need to be notified once a decision that a property will be exited and made good:

 

  • Site manager and key site staff;
  • Procurement team for disconnection of electricity and telephones, and ceasing of such services as waste removal, pest control, vending machines, etc.;
  • IT for removal of IT equipment;
  • Corporate Comms for removal of signage and what will be done with signs;
  • Relevant department for removal of security equipment;
  • Finance that Bank Guarantee will have to be returned if one exists;
  • Finance (including Accounts Payable) to have advance warning that in due course rent and outgoings’ payments will cease

A local or onsite Make Good co-ordinator should be appointed to oversee the Make Good works if necessary.

As a general rule, allow four weeks for the completion of Make Good works.

Typical make Good works include:

as2

Office

  • Remove tenant fit-out, unless otherwise agreed;
  • Remove all furniture and equipment;
  • Remove all signs, posters and bulletin boards from walls;
  • Patch and paint walls from removal of items;
  • Repair any damage to walls;
  • Steam clean all carpets;
  • Clean toilets and mop floors;
  • Remove IT equipment, including racks;
  • Remove rubbish and clean property;
  • Clean vents in toilets;
  • Remove cabling;
  • Site manager and key site staff;
  • Procurement team for disconnection of electricity and telephones, and ceasing of such services as waste removal, pest control, vending machines, etc.;
  • IT for removal of IT equipment;
  • Corporate Comms for removal of signage and what will be done with signs;
  • Relevant department for removal of security equipment;
  • Finance that Bank Guarantee will have to be returned if one exists;
  • Finance (including Accounts Payable) to have advance warning that in due course rent and outgoings’ payments will cease

A local or onsite Make Good co-ordinator should be appointed to oversee the Make Good works if necessary.

As a general rule, allow four weeks for the completion of Make Good works.

Typical make Good works include:

warehouse

Warehouse

• Remove all stock;
• Remove all furniture and equipment;
• Dismantle, remove and Make Good all racking bolts;
• Racking bolts to be core drilled and filled with epoxy;
• Dismantle, remove and Make Good all hand rails, cages and Armco railing;
• Hand rail and Armco railing bolts to be core drilled and filled with epoxy;
• Repair damaged cladding;

• Remove all line marking;
• Remove all signs and patch and paint any associated damage;
• Repaint bollards;
• Remove all 3-phase power;
• Clean down internal warehouse walls up to dado panel height;
• Paint dado panels; and
• Remove rubbish and clean property.
• Provide certification of removed 3-phase power;
• Remove wall mounted IT boxes;

456

Hardstand

• Repair fence damage;
• Remove all signs from external building facades;
• Remove all security equipment;
• Paint bollards;
• Repair damaged surface;
• Repair damaged Armco railing;
• Remove line marking; and
• Remove rubbish and debris from site.

sq2

External Areas

• Remove all signage;
• Remove all IT equipment, including IT and security cabling;
• Repair fence damage;
• Remove all tenant installed signs;
• Remove oil stains from car park;
• Remove rubbish and debris;
• Remove security system; and
• Repair damaged gate.

While a Make Good is a cost-based exercise, what most landlords and tenants fail to realise is that actions can be taken to reduce the financial burden of a Make Good. The sale of such assets as racking and furniture can be used to mitigate the financial impact of a Make Good. While not the norm, some Make Goods have even generated a profit for industrial tenants due to the value of the assets sold.

The removal of stock and furniture, as well as the repair of damage are the most obvious Make Good activities. What mustn’t be forgotten however is the disconnection and removal of the following services and equipment before the lease end date:

  • Electricity – Including final meter reading and record of NMI
  • Telephone lines
  • Waste removal;
  • Pest Control;
  • Cleaning and other site contracts;
  • Vending Machines; and
  • Security monitoring and patrols.

With approximately two weeks to go from the end of the Make Good works it makes sense to arrange a joint inspection between the landlord and the tenant. The purpose of this progress inspection is to validate that the works are being completed to the landlord’s satisfaction and that they are on track to be completed on time.

By ‘on time’ we refer to no later than the lease end date. The tenant will be exposed to additional rent and outgoings’ expenses if Make Good works are not completed by the lease end date.

Best practice, and risk mitigation, suggests that photographic evidence be taken of all completed Make Good works.

On completion of the Make Good works a final inspection needs to be arranged with the landlord. The objective is to verify that the works have been completed as per the lease requirements and to the satisfaction of both parties.

  1. Handover

Following the final Make Good works’ inspection between the landlord and the tenant the tenant will proceed to arrange for the handover of all keys and passes to the landlord. When this takes place the tenant will write to the landlord on company letterhead notifying that Make Good has been:

  • That all relevant Make Good conditions of the Lease have been satisfied;
  • Completed to a satisfactory standard;
  • That keys have been handed over; and
  • That all rent and outgoings’ payments will cease as of lease end date.

At this point in time the business will also be notified that the property has been exited and Made Good and that:

  • No further rent and outgoings payments are to be made for periods beyond the lease end date; and
  • All site services and contracts to have been discontinued.

If a Bank Guarantee is in place the process and handover to Finance of the landlord releasing the Bank Guarantee will commence.

  1. Lessons

Camino property Services adheres to a culture of continuous improvement hence it is very important at the end of each and every Make Good that the Camino Make Good Project Tracker is closed and that all lessons learnt are captured and distributed to key stakeholders, including company’s wider project group.