A Tenant's Unapproved Foyer Rebuild Cost Four Times Today's Typical Office Fitout

Tabcorp v Bowen, the reinstatement case that cost about four times a typical fitout

Bowen Investments owned an office building at 5 Bowen Crescent, Melbourne, and leased it to Tabcorp for 10 years from 1 February 1997. The foyer had been finished less than six months earlier in San Francisco Green granite, Canberra York Grey granite and sequence-matched crown-cut American cherry. Clause 2.13 of the lease barred the tenant from making any substantial alteration without the landlord's written approval. On 11 July 1997 the landlord told Tabcorp in writing that it could not consent until a site meeting on 14 July. A director arrived for that meeting to find a glass and stone partition, the timber panelling and the stone floor tiles removed, and what was left of the stonework being jackhammered. Tabcorp kept going and finished a new foyer on 31 August 1997.

The landlord sued Tabcorp in the Federal Court. The trial judge measured the loss mostly as the drop in the building's value and awarded $34,820. The Full Court of the Federal Court raised the award to $1.38m, made up of $580,000 to restore the foyer to its original condition and $800,000 for rent lost while the restoration took place. The High Court dismissed Tabcorp's appeal on 12 February 2009. It held that the landlord was entitled to the cost of rebuilding the foyer as it was at the start of the lease, and that a tenant's argument that reinstatement is unreasonable will succeed only in fairly exceptional circumstances. In the Full Court, Rares J said the lease's repair, yield-up and make-good clauses meant the tenant had to make good its unauthorised changes when the term ended. The High Court also noted that Tabcorp never asked for a discount for the landlord ending up with a newer foyer than it would otherwise have had back.

The judgment says the damages claim was based partly on 2004 costs and partly on 2006 costs, and the figures here are not adjusted for inflation. Set against a typical office fitout today ($340,000) at Going Rate's prices, the trial award was about a tenth of a fitout. The restoration cost alone was about 1.7 times a fitout, and the full $1.38m was about four times, of which $800,000 was rent.

Office lease incentives by city in 2026

Landlords hand back a large share of the rent to land a tenant, as rent-free months, cash toward the fitout, or both. Knight Frank's Australian Office Indicators for Q2 2026 put prime CBD incentives at 34.9% in Sydney, 37.5% in Brisbane, 33.8% in Adelaide and 28.6% in Canberra, all measured on gross rent. Perth sits at 47% and Melbourne at 48.1%, both measured on net rent. Knight Frank's Melbourne report gives a current range of 36 to 55%. Gross and net percentages use different rent bases, so a Melbourne figure cannot be lined up directly against a Sydney one.

Suburban and fringe markets give more. Knight Frank lists St Kilda Road at 50.0% net, Southbank at 47.5% net, and St Leonards and Chatswood at 44% gross. Within the Sydney CBD the prime incentive runs from 31.6% in the Core precinct to 42.0% in the Southern precinct, so a tenant in the Southern precinct gets about 10 points more.

Vacancy follows the same pattern. The Property Council's July 2026 office market report put national vacancy at 16.1%, up from 15.8%. Knight Frank's table, using the Property Council's H1 figures, shows Melbourne CBD vacancy at 18.9%, the highest of the capital city CBDs, against 10.2% in Brisbane and 13.3% in Sydney.

Face rent against net effective rent

The face rent in a lease is the headline figure. Net effective rent is what the landlord collects after the incentive. Knight Frank puts Sydney CBD prime net face rent at $1,470 a square metre a year and net effective rent at $868, about 41% lower. In Melbourne the figures are $773 and $401, so the effective rent is about 48% below face. Sydney net effective rents rose 12.2% over the year to Q2 2026, the largest growth of the CBDs Knight Frank tracks, and Knight Frank links the strong effective rent growth to falling incentives.

Deals show the range inside one city. Knight Frank records QUBE Research taking space at 88 Phillip St in the Core precinct on a $1,830 face rent with a 27.0% incentive over 7 years, and Australian Registry Investments taking space at 680 George St in Midtown at $1,200 with a 43.5% incentive over 10 years. The Core deal carried the higher rent and the smaller incentive.

As an illustration on our own assumptions, take a 150 square metre Melbourne CBD tenancy on a 10-year lease at Knight Frank's $773 net face rent, and treat the 48.1% net incentive as a share of total net face rent over the term. That gives incentive value of about $557,700, roughly 1.64 times a typical office fitout ($340,000) at Going Rate's prices. Real incentive packages are negotiated deal by deal and split between rent-free time and fitout money, so this shows scale only.

What an office fitout costs per square metre

JLL's 2026 fitout guide puts a moderate-style, medium-quality office fitout in Australia at $3,011 a square metre as of Q1 2026, against an Asia Pacific average of $2,197. Cushman and Wakefield's 2026 guide gives city averages of $2,938 in Canberra, $2,615 in Brisbane, $2,599 in Sydney, $2,535 in Melbourne and $2,406 in both Adelaide and Perth. Turner and Townsend's 2026 figures for Sydney run from $3,357 at low spec to $7,221 at high spec, but they include loose furniture, AV and professional fees, so they sit above the other guides.

The tenant type moves the price more than the city. Rider Levett Bucknall's 2026 Sydney digest prices an open-plan fitout, including loose and fixed furniture, at $1,860 to $3,500 a square metre for insurance offices and government departments, rising to $3,250 to $5,300 for solicitors and financiers. In Melbourne the same insurance and government band is $1,440 to $2,450. RLB prices a single Sydney workstation module from $2,950 for a call centre desk to $48,500 for an executive one. The Department of Finance reports Commonwealth office tenancies averaged 12.5 square metres per work-point in 2025, so at Cushman and Wakefield's Sydney average a fitout runs to about $32,500 per work-point, on our calculation from those two sourced figures.

As a whole job, a typical office fitout ($340,000) is the Going Rate benchmark, and a larger commercial fitout ($510,000) costs more. Trade lines inside the budget include data cabling for the floor ($1,750). Cushman and Wakefield found 83% of the Australian fitout contractors it surveyed expect labour costs to rise slightly over the next six months.

Who owns the fitout decides the tax

The ATO's lease incentive ruling, IT 2631, dates from 1991, and the ATO's legal database still publishes it with no withdrawal notice on the page. It says a free fitout that the landlord owns is effectively tax-free to the tenant, because the only benefit is the use of it. If ownership passes to the tenant, the value is assessable, with depreciation available. Where the tenant is responsible for the fitout and the landlord pays the contractor, the ruling says the tenant is taken to have derived an assessable amount equal to those payments, and a 1991 addendum limits that rule to cases where the tenant will own the fitout or has a right to remove it. Rent-free periods are treated differently, and the ruling says their taxable value is reduced to nil.

Structural and fixed parts of a fitout that are not plant fall under the capital works rules, at 2.5% a year for most non-residential works or 4% for some uses, according to the ATO. The ATO says the permanent $20,000 instant asset write-off is now law: from 1 July 2026, businesses with aggregated turnover under $10m can immediately deduct eligible depreciating assets costing less than $20,000 each, which can include fitout items a small tenant owns.

Which of these applies turns on the wording of the lease and the incentive deed. At Going Rate's prices, a lawyer's commercial lease review ($3,300) comes to under 1% of a typical office fitout ($340,000).

The fitout outlasts the lease

The ATO's 2025 effective life determination, which replaced the 2015 instrument, gives workstations including desks and partitions an effective life of 20 years, demountable partitions 20, chairs 10 and carpets other than fixed carpet tiles 8. The ATO withdrew TR 2022/1, its ruling on how it sets those lives, at the end of October 2025. Set against the 7 and 10 year terms in Knight Frank's Sydney deals, a workstation's 20-year tax life spans nearly three 7-year leases, or two 10-year ones.

That gap shows up at make-good time. In its retail lease brochure for tenants, Victoria's Small Business Commission describes a make good obligation as the tenant's obligation to restore the premises to their original state at the end of the lease, and tells tenants to understand what that will likely cost. A tenant leaving after one term may have to strip out fitout with years of tax life left, then pay to put back what was there before.

The move itself carries smaller lines on top, such as new commercial signage ($7,650) at the next address and an office clean ($890).

The review window before you sign

For retail leases in Victoria, the landlord must hand over the disclosure statement and proposed lease at least 14 days before the lease is entered into, and the statement must cover works, fit-out, refurbishment and alterations, the VSBC says. For retail leases in NSW, the Small Business Commission says the lessor's disclosure statement is due seven days before signing, and that costs left out of it might not have to be paid. Both rules apply to retail leases, which the VSBC defines as premises used mainly to sell or hire goods by retail or to provide retail services. An office used for neither falls outside that definition, which leaves its tenant with the lease itself.

The clauses on alterations, repair and yielding up the premises are where the Tabcorp liability sat. At Going Rate's prices, the $1.38m award was more than 400 times a lawyer's lease review ($3,300), and even the $34,820 trial award was about ten times the fee.

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