How to Calculate Make Good Costs: A Comprehensive Guide for Australian Tenants

A vague “back to base building” clause in your lease isn’t just a legal formality. It’s a significant financial liability that can impact your final balance sheet by hundreds of thousands of dollars. Understanding how to calculate make good costs accurately is the only way to protect your bottom line before the keys are handed back to the landlord.

We know that most warehouse managers and operations leads find the end-of-lease process frustrating, especially when faced with pressure to restore a space to a state that isn’t clearly defined. You’ve worked hard to ensure your facility is built strong, built safe, and built to last, so it’s only fair that your exit is as orderly as your operations. This guide provides the exact steps to estimate your commercial lease restoration expenses, ensuring you avoid costly disputes. We are not assemblers. We are industrial solutions experts with over 20 years of experience in Melbourne. Whether your facility relies on turnkey storage systems or Proudly Australian-made components, we will help you navigate the difference between accounting provisions and physical strip-out quotes to minimise your final exit costs.

Understanding Your Make Good Obligations and Lease Clauses

In the Australian commercial property sector, “make good” refers to the contractual requirement for a tenant to return a leased space to a specific condition at the end of their term. This is rooted in the legal tenant’s obligation to restore any leasehold improvements or fixtures installed during the occupancy. For warehouse managers and business owners, failing to understand the specific wording of these clauses often leads to significant financial disputes. Most disputes arise because the “original condition” is poorly defined or the landlord demands upgrades that exceed the initial state of the building.

There are typically three primary types of make good obligations found in Melbourne industrial leases:

• Standard Make Good: Requires the removal of your specific fit-out, including office partitions and racking, followed by basic repairs and painting.
• Base Building: This is a more intensive requirement where the space must be stripped back to its shell, often involving the removal of all mezzanine floors, floor coverings, and electrical services.
• Cash Settlement: A negotiated financial payment made to the landlord in lieu of performing the physical works, allowing them to lease the space to the next tenant as-is or perform their own upgrades.

Legal triggers such as “fair wear and tear” exclusions are vital. You aren’t usually responsible for the natural deterioration of the building over time, but you are responsible for damage caused by pallet racking installation or heavy machinery. Determining where wear ends and damage begins is a critical step when you look at how to calculate make good costs for your final budget.

The Role of the Dilapidation Report

The Schedule of Condition or Dilapidation Report created at the start of your lease is your most powerful tool for cost mitigation. It serves as the definitive baseline for the property’s state. If the landlord requests that you repair pre-existing cracks in the warehouse floor or replace aged lighting that was already present at handover, this is known as “betterment.” You aren’t legally required to leave the property in a better state than you found it. A well-documented entry report can reduce exit costs by up to thirty per cent.

Accounting Provisions vs. Actual Market Quotes

For operations leads and CFOs, managing make good is a two-fold process involving both financial reporting and physical logistics. Under AASB 116, Australian companies must recognise the cost of dismantling and removing assets as part of their property, plant, and equipment. However, a provision on a balance sheet is often based on broad industry averages or historical data. It rarely reflects the current market price for steel disposal, labour, or specialised grinding services.

As your lease end approaches, it’s essential to move beyond accounting estimates. Obtaining a physical quote from a contractor ensures your figures are grounded in reality. We are not assemblers. We are industrial solutions experts who understand the practical costs of deconstructing complex environments. Updating your estimates annually ensures that your business is not caught off guard by rising trade costs or changes in waste disposal levies in Melbourne’s industrial zones.

A Step-by-Step Framework to Calculate Physical Strip-Out Costs

Determining how to calculate make good costs requires a methodical approach to the physical assets currently within your facility. You must move beyond general estimates and conduct a granular site audit to identify every non-original fixture and fitting. This process starts at the ground level. You need to measure the exact square meterage of floor finishes that require removal or grinding. Every bolt hole from previous installations represents a specific labour cost for patching and levelling to meet handover standards.

We are not assemblers. We are industrial solutions experts who understand the structural complexity of these environments. Your calculation should quantify all industrial elements, including pallet racking and mezzanine floors. It is not just about the hours spent on-site; you must also factor in the re-instatement of original landlord services. Fire sprinklers and HVAC systems often require professional re-balancing once partitions are removed to restore the original open-plan grid. If you require a precise assessment of your space, you can request a technical site audit to define your scope of work.

Industrial and Warehouse Specific Considerations

Calculating the cost of dismantling and transporting pallet racking systems is often underestimated. You are responsible for the safe removal of all structural fabrications that were not part of the original building. Floor damage is a major cost driver in these environments. You must estimate the patch-and-grind requirements for thousands of bolt holes. Ensuring the slab is restored safely is vital, especially for systems that were built strong, built safe, and built to last during your tenancy.

Office and Commercial Interior Strip-Outs

Estimating the labour hours for glass partition and plasterboard wall removal is essential for an accurate budget. Data cabling is frequently a hidden expense. Pulling redundant cables from ceiling voids is labour-intensive and often requires specialised disposal. For those seeking professional standards, the RICS guidance on make good best practices provides a framework for property professionals to quantify these tasks accurately. Understanding these physical requirements is the most reliable way to determine how to calculate make good costs without relying on vague industry averages.

Factoring in Management, Disposal, and Compliance Fees

Accurate budgeting requires looking beyond the physical labour of a strip-out. Soft costs, such as waste levies and professional certifications, often account for twenty per cent of the total project expenditure. When you look at how to calculate make good costs, you must quantify the volume of industrial waste your facility generates. Melbourne metropolitan waste levies for commercial and demolition waste are currently $169.79 per tonne for the 2025-2026 period. This makes volume estimation a critical technical task rather than a guess.

Access and timing constraints also influence the final price. If your facility is located in a high-traffic zone or a CBD centre, work may be restricted to after-hours windows. This shift in timing significantly increases labour rates and must be factored into your initial estimate. We are not assemblers. We are industrial solutions experts who understand the logistical complexities of Melbourne’s industrial landscape, ensuring every project is delivered with operational precision.

Sustainable Disposal and Recycling Credits

Industrial facilities offer unique opportunities to offset expenses through material recovery. Steel from pallet racking or mezzanine structures and aluminium from office partitioning can often be recycled. These credits can reduce your final bill, provided the materials are processed correctly. Separating waste streams can lower disposal costs significantly by avoiding the higher rates charged for mixed construction waste. This methodical approach ensures your exit is as efficient as your initial fit-out.

Management and Professional Service Fees

Project management is a significant cost variable. Many landlords charge a management fee of ten to fifteen per cent if they oversee the works on your behalf. Managing individual trades yourself often leads to scheduling conflicts and increased labour rates. Engaging a turnkey provider eliminates these overlaps and ensures all works meet the required Australian standards, such as AS4084-2023 for the safe decommissioning of racking systems. For a detailed breakdown of financial reporting requirements, consult the official accounting guide for make good costs provided by the Department of Finance.

Compliance is the final hurdle in the make good process. You must factor in the cost of electrical safety certificates and fire compliance sign-offs to prove the space is safe for the next tenant. A final Exit Dilapidation Report is often necessary to document that all lease obligations are satisfied. To ensure your compliance documentation is handled with precision, contact our project management team for a comprehensive assessment of your facility.

Strategies to Minimise Your Final Make Good Bill

Reducing your end-of-tenancy liability requires a proactive approach that begins well before the lease expires. While the physical scope is important, the final bill is often determined during the negotiation phase. The Cash Settlement Strategy is frequently the most efficient route for businesses wanting to avoid the operational disruption of a physical strip-out. By agreeing on a lump sum payment, you transfer the restoration responsibility back to the landlord. This is particularly effective if the landlord intends to repurpose the site or if the market demands a different configuration than your current setup.

You must also scrutinise your original lease for incentive clawbacks. If you received a fit-out contribution at the start of your term, some clauses might require a portion of that value to be repaid during the make good process. Identifying what constitutes “Tenant Property” versus “Landlord Fixtures” prevents you from paying to remove assets the landlord actually wants to keep. Investing in a turnkey warehouse fit-out from the start ensures your assets are clearly documented, making the eventual exit much cleaner.

A detailed cost estimate acts as your primary lever in these discussions. Understanding how to calculate make good costs through a technical lens gives you the evidence needed to challenge inflated landlord claims. Investigate whether the building is slated for demolition or major redevelopment. If the structure is being replaced, your restoration obligations may be legally redundant. Pay close attention to the “Yield Up” notice requirements. Missing these dates can trigger holdover rent penalties that far exceed the cost of the physical strip-out.

We are not assemblers. We are industrial solutions experts who take full responsibility for the project lifecycle. Partnering with a single firm for both warehouse relocations and make goods creates significant operational efficiency. This “One-Stop-Shop” approach eliminates trade overlaps and ensures your new site is built strong, built safe, and built to last. For a professional make good assessment that protects your commercial interests, contact A1 Precision Solutions.

Secure Your Business Exit with Technical Precision

Managing a commercial exit requires the same level of discipline as your initial facility fit-out. Successful restoration depends on accurate dilapidation reports, granular site audits, and a thorough understanding of current Melbourne waste levies. Mastering how to calculate make good costs is a fundamental part of commercial risk management. It protects your balance sheet from arbitrary landlord claims and ensures your transition to a new facility remains on schedule.

We are not assemblers. We are industrial solutions experts with over 20 years of experience in Melbourne industrial environments. Our team specialises in complex racking and mezzanine strip-outs, providing full turnkey management that covers everything from warehouse relocation to the final compliance sign-off. We ensure that every component of your facility is handled with the expertise required for systems built strong, built safe, and built to last.

Get a Professional Make Good Quote for Your Warehouse or Office to ensure your end-of-tenancy obligations are met with operational certainty. Your business deserves an exit strategy as well-planned as its growth.

Frequently Asked Questions

How much does a commercial make good cost per square metre in Australia?

Determining a single square metre rate is difficult because costs fluctuate based on fit-out complexity, building age, and specific lease obligations. Industrial strip-outs involving heavy pallet racking or mezzanine floors require more labour and specialised equipment than a basic office clean-up. To understand how to calculate make good costs accurately, you must assess the volume of waste and the hours required for structural dismantling. Relying on generic industry averages often leads to budget shortfalls, so a site-specific technical audit is essential for a precise figure.

What is the difference between a standard and base building make good?

A standard make good typically requires you to remove your own additions, such as office partitions, racking systems, and workstations, while performing basic repairs to the walls and floors. A base building make good is far more intensive. It requires the tenant to strip the premises back to its original structural shell, which often involves removing all floor coverings, ceiling tiles, and electrical services. Base building requirements are significantly more expensive and labour-intensive because they involve restoring the landlord’s original open-plan grid.

Can I leave my fit-out behind if the next tenant wants to use it?

You can only leave a fit-out behind if you obtain the landlord’s express written consent. While it might seem practical to leave quality installations for a future occupant, landlords often prefer a blank canvas to make the space more marketable to a wider range of businesses. If the landlord agrees to keep the fit-out, ensure this is documented in a formal deed of release. Without this paperwork, you remain legally liable for the cost of its removal even after your lease has expired.

Do I have to remove data cabling as part of a make good?

Most commercial leases categorise data cabling as a tenant fixture that must be removed at the end of the term. Abandoned cables in ceiling voids can create fire safety hazards and complicate future electrical upgrades for the next tenant. Removing these cables is a labour-intensive process that requires working at heights and careful disposal. When you are looking at how to calculate make good costs, don’t overlook the time required for technicians to safely pull and recycle redundant wiring from the building’s infrastructure.

What happens if I cannot finish the make good before my lease expires?

Failing to complete the works by the expiry date usually triggers “holdover” provisions in your lease. This allows the landlord to charge you rent for every day the space remains occupied by your fit-out, often at a rate significantly higher than your standard monthly rent. You may also be liable for damages if your delay prevents a new tenant from moving in. It’s critical to schedule your strip-out at least four to six weeks before your lease ends to allow for final inspections and compliance sign-offs.

Is a cash settlement better than performing the physical make good works?

A cash settlement offers speed and removes the risk of project delays, but it often comes at a financial premium. Landlords typically calculate settlement figures using their own contractor quotes, which may include a ten to fifteen per cent management fee. Performing the physical works yourself gives you greater control over the budget and allows you to use your own trusted contractors. However, if your business needs to relocate quickly and cannot manage a complex construction project, a cash settlement may be the most efficient operational choice.