This can be the case, but there can also be serious financial consequences should they not be managed properly.

Triple net leases differ from traditional leases in that the tenant is generally responsible for all of the operating expenses including repairs, maintenance and life cycle capital expenditure – a new roof, air conditioning system, lifts, and the like.

However, there are risks to be aware of with such property. Triple net lease investments are often single tenanted properties, perhaps with a special purpose or use.

The commercial stability of the tenant is of course fundamental in any investment, but in a triple net lease are they also going to:

• Take a proactive and planned approach to managing the asset?
• Keep on top of property maintenance and life cycle repairs and replacements?
• Fully understand what their obligations are?
• Know how to live up to and manage their end of the bargain?

It is, of course, vitally important that the investment is protected. A property with deferred maintenance and a high level of capital expenditure requirements over five or ten years, will have a lower commercial value compared to the same or similar property with less of an expenditure profile.

For this purpose, astute investors keep an eye on their tenant’s approach to asset management and the way that repairs, maintenance, and replacements are programmed and performed, through annual inspections and audits.

A good approach and regime can be established early in the relationship. The annual review and report can be used as a tool to measure progress, to set future targets and to determine any corrective action.

For more than 30 years Napier & Blakeley has helped both owners and occupiers of commercial property with such matters.

• We perform lease reviews and help the parties understand both lease and statutory obligations and how these can be best met;
• We assess condition and performance of the building elements and forecast the scope and timing of commercially appropriate repairs, maintenance and capital replacements;
• We prepare accurate cost estimates for budgeting purposes and to improve cash flow.  We model the capital allowances and tax depreciation benefits in terms of write-offs from any strip out or demolition and then establish the future benefit that flows from the capital expenditure.

Some recent relevant projects include:

Call us today, if you would like any more information for a specific property or portfolio and one of our experts below will be able to assist you:

SYDNEY
Simon Gould
o.  02 8113 7112
m. 0409 228 552 
e.  sgould@napierblakeley.com

MELBOURNE
Rob Howells
o.  03 9915 6327
m. 0437 649 082
e.  rhowells@napierblakeley.com

BRISBANE
Gavin Peach
o.  07 3815 0449
m. 0412 225 781
e.  gpeach@napierblakeley.com 

PERTH
Graham Rigby
o.  08 9489 4895
m. 0419 847 998
e.  grigby@napierblakeley.com

For 30 years and counting Napier & Blakeley have been providing the following services to the property industry:

• Acquisition & Disposal Technical Due Diligence
• Quantity Surveying
• Capital Expenditure Forecasting
• Make Good Reporting
• Energy Management
• Energy Efficiency
• Development Monitoring
• Property Tax Depreciation

Fortunately, only a few Make Good disputes end up in the Courts. However, the potential for protracted arguments is on the rise.

Some of the drivers include:

• Changing conditions in the resources sector seeing engineering firms and the like, downsize;
• Large corporates relocating to new developments;
• An increasing demand for smaller spaces generally, through improved efficiencies and flexible work environments.

When it comes to handing back tenancy space the Lessee will need to comply with obligations to ‘yield up’. This is typically where the arguments start. Differences of opinion in who owns what; what work needs to be done to return the property to a condition ‘as at commencement’; whether current condition falls under the exception of ‘fair wear and tear’; and whether the extent of partial repair requires full replacement – to mention a few.

Disputes that run beyond the lease term are settled by ‘damages’ – a financial settlement following a claim. These not only include the costs associated with the physical works (typically $200 – $300/sqm for offices) but also legal costs, loss of rent and outgoings.

The good news is that such arguments (and additional costs) can be avoided – through good planning.

The professional body for surveyors, RICS, publishes guidance to help Parties, and their advisors, navigate the lease cycle.

Its important to:

• Draft clear lease clauses to avoid ambiguity;
• Prepare condition reports at commencement with plans and asset registers;
• Obtain lessor’s consent for any alterations made during the term and record whether these works fall in or outside of Make Good;
• Prior to lease expiry agree what physical works will either be carried out or alternatively, be met by a cash payment – and by when.

Good planning together with an extensive knowledge of property and the costs associated with Make Good, provide the clarity necessary to avoid costly arguments at lease end.

Here are some recent examples:

Our Transaction Advisory team is able to provide the following services for your projects:

• Land transaction technical due diligence
• Project / development monitoring
• Property transaction technical due diligence and benchmarking
• Property condition assessments
• Capital and maintenance expenditure forecasts
• Operational performance reviews and expenditure analysis
• Energy efficiency assessments
• Building improvement reports
• Environmental and hazardous materials assessments
• Regulatory compliance reports, BCA, OHS/WHS, ESM
• Town planning reports
• Land and lease surveys
• Indicative property depreciation schedules
• Replacement cost estimates
• Landlord and tenant dilapidations
• Make good assessments and negotiations

We have extensive cost data relating to Make Good projects and settlements and can provide quick benchmark comparisons. We have developed a number of strategies to protect Landlords and Tenants against the risks of the Make Good cycle.  Please access this link and down a copy of our Make Good Cycle Datacard.

Alternatively do not hesitate to call us to discuss your project.

ROB HOWELLS
National Director
o.   03 9915 6300
m. 0437 649 082
e.    rhowells@napierblakeley.com

GAVIN PEACH
Associate Director – Brisbane
o.  07 3221 8255
m. 0412 225 781
e.  gpeach@napierblakeley.com

SIMON GOULD
Associate – Sydney
o.   02 9299 1899
m. 0409 228 552
e.   sgould@napierblakeley.com

GRAHAM RIGBY
Senior Associate – Perth
o.   08 9489 4895
m. 0419 847 998
e.   grigby@napierblakeley.com

There are a number of questions to be answered:

• What needs to be repaired, replaced or improved?
• What are the priorities?
• When does it need to be done?
• What could safely be deferred?
• How much will it cost?
• What will be the return?

Napier & Blakeley can help answer all of these questions and more. Our expertise extends beyond Services Engineers, Building Consultants and Quantity Surveyors who have current cost information to produce cost estimates and property tax depreciation reporting aligned to the commercial goals of your business and intentions for the property.

Spending money is not all bad news:

• Needs can be prioritised.
• Cash flow can be improved through capital allowances and tax depreciation.
• Valuations can be improved.

There are many drivers for capital expenditure and some of the considerations include:

• Age, condition and remaining useful life of the structure, fabric and the building services.
• Performance of plant and equipment such as lifts and air-conditioning.
• Obsolescence, attractiveness to tenants and market positioning.
• Highest and best use.
• Compliance with Building Code, Premises Standards, accessibility, WHS and Environmental and Hazardous Materials.
• Statutory Compliance of the Essential Safety Measures and Building Energy Efficiency Certificates (BEEC) and NABERS prior to leasing or sale.

Here are some recent project examples:

Our Transaction Advisory team is able to provide the following services for your projects:

• Land transaction technical due diligence
• Project / development monitoring
• Property transaction technical due diligence and benchmarking
• Property condition assessments
• Capital and maintenance expenditure forecasts
• Operational performance reviews and expenditure analysis
• Energy efficiency assessments
• Building improvement reports
• Environmental and hazardous materials assessments
• Regulatory compliance reports, BCA, OHS/WHS, ESM
• Town planning reports
• Land and lease surveys
• Indicative property depreciation schedules
• Replacement cost estimates
• Landlord and tenant dilapidations
• Make good assessments and negotiations

Please do not hesitate to call us to discuss your project.

NATIONAL / MELBOURNE
Rob Howells
o.  03 9915 6327
m. 0437 649 082
e.  rhowells@napierblakeley.com

SYDNEY
Simon Gould
o.  02 8113 7112
m. 0409 228 552
e.  sgould@napierblakeley.com

BRISBANE
Gavin Peach
o.  07 3815 0449
m. 0412 225 781
e.  gpeach@napierblakeley.com

PERTH
Graham Rigby
o.  08 9489 4895
m. 0419 847 998
e.  grigby@napierblakeley.com