In today’s market, maximising returns and reducing costs is a core component of a Landlord’s focus. Recently, this has seen Landlord’s becoming more assertive towards the make good provisions found within a Lease, and recovery of the costs associated with reinstatement of a property following a tenant’s departure.For tenants, this can be an expensive and unforeseen cost.
There are ways to handle the issue for tenants, the first and foremost being to ensure that when they enter into a lease, they have a clear understanding on what their liabilities will be on termination of their lease term. If they are moving into an existing building, a schedule of condition will act as a means of limiting any liability to the condition of the property on the day they take occupation. There are good and bad ways to have a schedule of condition drawn up. It has to be accurate and readily understandable to those who will pick it up and review it when the lease finally draws to an end.
In addition, there is a wealth of international case law associated with make good provisions and repairing obligations that underpins negotiations between a Landlord and Tenant in relation to make good / reinstatement provisions. This relates to a range of factors, from potential new / planned uses for a property through to what constitutes a ‘loss’ to the Landlord.
The area can be a minefield, if the issue is not handled strategically, and it is often reasonably simple to mitigate any loss through smart planning and forward thinking.
IBC have been providing advice and expert witness services on these issues to Landlords and Tenants for over 15 years and are one of only a few New Zealand based professional services firms with a track record in the area.
Property Condition Assessment
Recently we have been asked to undertake condition assessments for a number of commercial property portfolio owners. The reason for these varies from being able to accurately report on the property assets on their balance sheets through to ensuring that the maintenance budgets that they have allocated for the properties in the portfolio are accurate.
Forecasting maintenance expenditure is not a simple exercise and requires a good understanding of the way that a building has been constructed and maintained. In this day and age, when sustainability and life cycle costing is becoming more and more important, we are all beginning to grow our understanding on how buildings perform. The historic building stock in NZ is the property that most concerns - these buildings were constructed before the advent of sustainability and life cycle costing.
There are a few simple techniques available to address the issues of maintenance forecasting which we adopt on a regular basis -
1. Independent auditing is becoming more prevalent - helping to ensure that there are no conflicts of interest when it comes to inspecting and reporting on defects
2. Understanding how buildings perform over long periods of time enables us to accurately assess the effects and risks involved in deferring maintenance expenditure
3. It is all about facilitating better decision making and the combination of 1 and 2 above help in this regard
Auditing is not about being critical of another's work, it is about helping to raise standards and improve the performance of NZ property assets, and that has to be good for all.
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Forecasting maintenance expenditure is not a simple exercise and requires a good understanding of the way that a building has been constructed and maintained. In this day and age, when sustainability and life cycle costing is becoming more and more important, we are all beginning to grow our understanding on how buildings perform. The historic building stock in NZ is the property that most concerns - these buildings were constructed before the advent of sustainability and life cycle costing.
There are a few simple techniques available to address the issues of maintenance forecasting which we adopt on a regular basis -
1. Independent auditing is becoming more prevalent - helping to ensure that there are no conflicts of interest when it comes to inspecting and reporting on defects
2. Understanding how buildings perform over long periods of time enables us to accurately assess the effects and risks involved in deferring maintenance expenditure
3. It is all about facilitating better decision making and the combination of 1 and 2 above help in this regard
Auditing is not about being critical of another's work, it is about helping to raise standards and improve the performance of NZ property assets, and that has to be good for all.
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