PROPERTY / PREMISES CONDITION REPORTS – WHY BOTHER?

BY LIAM NOLAN

There is proven value in a properly documented premises condition report. It greatly reduces the potential for uncertainty and expensive legal argument for a tenant’s reinstatement obligation at the termination of a lease. A premises condition report can be instigated by a landlord or a tenant and should be agreed to by both parties and attached to the deed of lease. A professional building surveyor engaged by either party, or jointly will produce a written and photographic report describing the condition of the premises at the lease commencement date.

So who needs one?

Lessor (Landlord)

Commercial building owners want reliable, long standing tenants. The likelihood of a property being fit for the new lessee’s purpose is low: invariably tenants want to make changes to the internal/external fabric or layout. These changes may be substantial and specific to the lessee’s business. When the lease ends, the building must be returned to its original leasable state with the exclusion of ‘fair’ wear and tear. Prior to termination of the lease, the landlord can instruct a building surveyor to carry out a reinstatement or dilapidation survey. This report will show the outgoing tenants’ reinstatement liabilities in terms of extent and financial value.

Lessee (Tenant)

In the same regard, any tenant looking to lease commercial premises will not want to face large reinstatement costs at the end of the lease, particularly if fixtures or fittings have only suffered ‘fair’ wear and tear. To protect yourself from this enlist a building surveyor to conduct a Premises Condition Survey and provide you with a detailed report.

Prendos has numerous examples of the time and cost savings as a result of taking this action – and conversely – the danger of not doing so…

When good relationships go bad

Having both parties agree on the property’s existing condition at the start of the lease greatly helps determine the level of financial liability for the tenant at the termination of the agreement. Dilapidation or reinstatement claims are a complex and contentious part of the landlord/tenant relationship. These can be extremely expensive if legal claims arise.

Who do I get to do one?

It’s not uncommon for builders to offer this sort of service, but BEWARE! It is unlikely they have been adequately trained or indemnified to do this work. Professional building surveyors (Chartered or Registered Building Surveyors) are experienced, trained and impartial. Prendos offers a fixed fee based engagement that provides a comprehensive written report with photo documentation. This report can be attached to the lease. Typical elements covered include:

> Fixtures and fittings
> Floor coverings
> Wall and ceiling finishes

Elements are generally reported to be in ‘poor’, ‘fair’ or ‘good’ condition, with comments that relate to whether the fixture or fitting was working if it was tested.

Case Study

Prendos is currently working with a chain of Optometrists with stores worldwide (managed from Australia). The company is embarking on a large expansion programme throughout New Zealand.

One of the first stores to be upgraded is located in Tauranga (Prendos has an office there, along with five others throughout the country). Their proposal is to take a new lease on a commercial property next to their existing one and upgrade the premises to provide one large store.

The company prudently requested Prendos to provide a fixed fee based proposal to carry out a premises condition report. A sanitized report showing an example format and content was also provided with the proposal in order to ensure all the client’s requirements were covered.

Once accepted, the report produced was turned around in less than one week. The client was impressed with the level of service and requested to engage Prendos’ other in-house services. These included acting as their agent to lodge the building consent for the upgrade works; providing them with a Fire Report, an Accessibility Report and Specifications to accompany the building consent. Subsequently, Prendos is now carrying out the same service for stores on the North Shore and in Auckland’s CBD.

The client found value in Prendos’ expert multidisciplinary, national service offering which meant dealing with one just company for all of their requirements.For more information please refer to https://prendos.co.nz/our-services/technical-due-diligence

To find out more about how we can assist when purchasing an apartment, seismic assessments or our property valuation services call 0800 PRENDOS or email prendos@prendos.co.nz.

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