Headaches and protracted negotiations at lease expiry could be avoided by well drafted Make Good clauses and thought out strategy (see

However, more often than not, the end of term Make Good obligations require negotiation between Landlord and Tenant.  This may be in the form of Lease incentives or other commercial considerations negotiated between the Property Manager, Asset Manager and the Tenant directly.

Alternatively, specialist Make Good advice can obtained from Napier & Blakeley.

What We Do – End of Term Claims:

We will discuss the overall asset strategy for the premises. This will consider what the owner ultimately wants from the Make Good process, i.e. a financial settlement, the Tenant to undertake the Make Good works or to use the Make Good figure part of their Lease renewal negotiations.

Undertake a review of the Lease and other tenure documentation prior to inspection, in order to determine and provide advice on the likely Tenant responsibilities.

Complete a detailed inspection of the Premises to determine the level of Make Good works which fall under the Tenant’s responsibility. Typically this would include the removal of their additions and alterations, reconfiguration of building services, renewal/repair of damaged elements and redecoration.

Finalise a comprehensive Make Good report, including outlining the Tenant’s obligations under the Lease. A fully costed schedule of works will be provided, in collaboration with our QS team, to provide current and accurate cost estimates for the required Make Good works.

Strategic claim progression advice will be provided, which is linked back to the overall Asset Management discussion at the outset.

We also have extensive negotiation experience and can help with the direct negotiations with the Tenant if so required.

When:

We regularly become involved in the Make Good process up to 18 months in advance of a Lease expiry. Our Make Good advice can be used in future budget planning and to open early discussions with the Tenant.

If the Tenant indicates they will undertake the Make Good works during the term, we can assume the role of Development/Project Monitor in order to ensure a fully compliant space is provided at Lease expiry. It can be difficult to claim for “poor workmanship” against the Tenant after the Lease has expired, therefore regular monitoring can be very useful.

At Lease expiry, we will inspect in order to determine the Final Schedule of Make Good following any repair or strip out works undertaken by the Tenant.

We can carry out pre- and post-Lease expiry negotiations directly with the Tenant in order to maximise any final settlement or scope of works.

Additional Services:

In addition to the “Standard” end of term Make Good claims, we also undertake the following services:

• Portfolio Make Good estimates
• Claim assessments and negotiations for Tenants
• Project Management/Development Monitoring of the works, for both the Landlord and Tenant
• Pre-lease schedules of condition
• Lease reviews
• Tenant alteration approvals
• Strategic claim progression and negotiations

We have a broad range of experience on both sides of a Make Good claim. This, coupled with our extensive cost data, allows us to provide tailored, expert advice for Landlord or Tenants on any Make Good claim, so contact us now.

Contacts

Transaction & Asset Advisory
Rob Howells – 03 9915 6300 – rhowells@napierblakeley.com
Alastair Walker – 02 9299 1899 – awalker@napierblakeley.com
Gavin Peach - 02 9299 1899 – gpeach@napierblakeley.com
Paul Mazoletti – 07 3221 8255 – pmazoletti@napierblakeley.com

Development Advisory & Quantity Surveying
Craig Smith – 03 9915 6300 – csmith@napierblakeley.com
Peter Hammond – 02 9299 1899 – phammond@napierblakeley.com
Paul Cosker – 07 3221 8255 – pcosker@napierblakeley.com
Adam Greene – 07 3221 8255 – agreene@napierblakeley.com

Property Depreciation & Insurance
John Mathew – 03 9915 6300 – jmathew@napierblakeley.com
Peter Guerra – 02 9299 1899 – pguerra@napierblakeley.com
Peter Osborn – 02 9299 1899 – psoborn@napierblakeley.com

Sustainable Property Solutions
Peter Frith – 03 9915 6300 – pfrith@napierblakeley.com
Craig Ryan – 03 9915 6300 – cryan@napierblakeley.com
Stuart Winton – 03 9915 6300 – swinton@napierblakeley.com

Do not make the mistake of assuming that others know what they are looking for.

Did you hear the one about the Senate enquiry into two disappearing billiard tables?

These two tables used to be located in the parliament’s staff recreation area and when it was realised that they had disappeared a senate enquiry ensued to find out where they had gone and importantly $100,000 was spent to find the tables that had been sold for a sum total of $4,900.

How does that fit with you as a tax payer?

What this event does highlight is the fact that assets get added and disposed of every day in the property world. Sure items are removed and added with some people’s knowledge including the building managers and asset managers but more often than not this is where the information flow stops. The potential tax implications of this capital expenditure and disposal are often not considered, often missed or not maximised are events such as landlord contributions for fit outs and any reversionary depreciation opportunities.

If this information does make it to the accounts team, then often the information is incomplete or poorly described. What this means is that asset registers become large and unmanageable and there is therefore no way of clearly tracking the assets that are actually held and owned by the landlord. Overall this means that year on year depreciation diminishes in your tax schedules rather than rising and falling in line with the capex or replacement activity that naturally occurs with your assets. This exercise also makes the audit process easier across a whole portfolio basis.

A Napier & Blakeley health check focuses on your existing asset registers and tax depreciation claims. We highlight the opportunities for write-offs, reversionary depreciation, landlord contributions and even the initial basis of the depreciation claim. We do this because we know not everyone has the knowledge or even the time to do a whole asset review; we also know that in more than 80% of occasions we can significantly increase both the overall deductions available and also year by year returns.

Whilst it may have cost the tax payer over $100,000 to discover what happened to their (our) billiard tables, a Napier & Blakeley fee will be a lot cheaper yet so much more rewarding.

Finally you will always have to pay for capital expenditure and from a landlord perspective the costs of tenant incentives are always going to be around, by effectively claiming your depreciation and write-offs at least a little bit of the sting can be taken out of this expenditure.

Most accountants recognise that using a Quantity Surveyor saves time and money and puts you in the driving seat when it comes to good asset management; ask yours how they are making the most of the opportunities available to you.

Napier & Blakeley is the most relied upon Quantity Surveying firm in the matter of maximising the benefits that Tax Depreciation can provide to the bottom line, make us part of your good asset management.

Contact

Please contact us for our Property Tax data card.

Our strategic, cost effective advice will best position your property for the future.

Call Napier & Blakeley today if you want further information or regarding any other Napier & Blakeley services.

For many years, building owners have subscribed exclusively to the theory, if it aint broke, don’t fix it. This however can be an expensive mistake.

It is important to acknowledge that a building is an asset. As such, it needs to be protected and maintained to ensure that its value is not eroded.

To retain and attract tenants, your asset must be presented in the best possible condition, which in turn will maintain or increase its value.

Napier & Blakeley Building Consulting Manager, Nigel Towse says that if building maintenance is ignored, it can have significant consequences.

“There is a common misconception that buildings have long lives and only deteriorate gradually. This may be true for the more robust forms of structure. However even these can deteriorate rapidly with structural failure, environmental issues, chemical attack or the ingress of moisture.”

The health and well being of tenants is paramount in any leased asset and is heavily linked to how the building is maintained. There are basic, statutory obligations that require regular maintenance to be carried out to this end. In particular, cleaning, testing, and checking etc, of fire systems, boilers, lifts and hoists.

“By planning and carrying out your maintenance efficiently, you can minimise your capital expenditure. This will ensure that your asset is safe, economical, efficient, environmentally friendly, and retains its value,” says Towse.

Summer time is a great time to take stock of your business and a great time to think about and diarise some property housekeeping issues that quite often get overlooked in the bustle of normal day to day business.

However if you consider this now, you can plan to carry out some crucial housekeeping duties in January when business is traditionally quieter.

Some of the not so sexy but absolutely essential items to consider to maximise your return and minimise your cost and risk are as follows:

Property Replacement Insurance: given the sizeable increases in construction costs in recent times, have you considered whether your properties are correctly insured? Do you know what you are insuring: base building and / or fit out?

Capital Expenditure Planning: what items have you planned over the next calendar year? How will they be managed?

Maintenance: are your maintenance contracts up to date and appropriate? Are there any routine maintenance items that can be efficiently attended to in this quiet time?

Tax and asset updates: Is your base schedule correct? Have you carried out any upgrade works during the financial year to date for which you can claim either a tax write off or a future tax deduction?

Condition Audits: Do you need to create or update any condition surveys of your tenanted properties?

Tenancy Make Good: Do you have a schedule of lease expiries that will occur during the year? Are there any “repairing and make good” obligations that need to be planned with the tenant?

N&B can assist with all of the above to help you really enjoy your summer holiday.

The recent warehouse fire in the Brisbane suburb of Sherwood should send a significant warning to property owners and managers about property replacement cost assessments. The damage to the Sherwood warehouse was massive. From a property owner’s perspective, it was critical that they were not under-insured.

Unfortunately, all too often we see companies that lose their assets (due to fire, flooding etc) without first ensuring they are adequately insured. This is an expensive mistake.

Everyday, property owners are at risk of under-insurance due to a variety of factors. The case study below demonstrates the difference between an insurance replacement cost assessment prepared by a qualified Quantity Surveyor and a property valuation estimate.

The example is based on a 10,000m2 property which has a 4,000m2 industrial building, including a 500m2 office component.

The above example is commonly found when discussing costs and risks with our property owner clients. Inadequate insurance cover leads to the property owner essentially becoming a co-insurer of the property and often relates to protracted negotiations in the event of a claim. This ratio (50% under-insurance in the above example) still applies if there is only a partial damage or loss.

In the other extreme, excess insurance cover provides no benefit to the insurer and will unnecessarily increase the asset’s outgoings.

Insurance against fire and related perils can be extended to cover the breakdown of plant and machinery. An analysis of the plant to be insured, including an assessment of its reinstatement cost and current condition, can also be provided. Properties with multiple buildings on one site should have separate replacement costs for each building and ownership of tenant fitouts needs to be taken into account. These fitouts can, in some cases, equate to a similar cost to the base building, especially when the fitout includes a high value of plant and equipment.

Napier & Blakeley have an extensive database of properties including over 4,000 industrial properties in Queensland. Many of our clients ask us to prepare an accurate assessment initially and then provide annual desktop updates based on construction cost indices and forecasts. More thorough reviews need to be completed after a few years of general indexed updates or when there have been significant changes to the asset or the legislative environment. These include tenant fitouts, renovations or extensions, changes to the BCA and significant variations to the material/labour supply in the local market. Napier & Blakeley will protect you from the substantial risks of under insuring your assets.