Make-good obligation
A contractual requirement for the lessee to restore the leased asset to its original condition at lease end — including removing any alterations made during the tenancy.
Definition
A make-good obligation requires the lessee to undo any fit-out, fixtures, or modifications made during the lease term before returning the asset to the lessor. It may also require restoration of any damage beyond fair wear and tear. Under IFRS 16 and amended FRS 102, if a make-good obligation is probable and can be reliably estimated, a provision is recognised at commencement and a corresponding cost is added to the right-of-use asset.
Why it matters
Make-good obligations are frequently overlooked but can be material — particularly for long-term property leases with significant lessee fit-out. They must be recognised as a provision, not expensed only when the work is done.
In AuditLease
The restoration provision input in AuditLease captures make-good obligations, which are factored into the initial ROU asset measurement and tracked across the lease term.
Related terms
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence, so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.