Disruption, potential unplanned costs and conflict at the end of a lease due to make good obligations can sour what has been a solid commercial relationship between landlord and tenant. This can complicate the tenant’s move or the re-letting of the premises. The pressures of a poorly set up lease in terms of documentation, understanding of the consequences of the relevant clauses from a technical perspective and agreement as to the condition at occupation, or of future alterations, are self evident for both parties. 

Properly qualified building consultants should be actively utilised in such processes due to their knowledge and understanding of leasing and legal aspects combined with their expertise in building conditioning and rectification. The proactive stance is to bring all parties together prior to the signing of the lease to agree not only the terms of occupation, lease and physical condition but also to the process at lease expiry.  

If this process has not been followed, the building consultant plays a key role in interpreting the relevant lease clauses and evaluating the property’s condition so to effectively define the make good obligations, the cost and the best method of rectification.

Proactive Tenancy Management  

Good management, both at lease commencement and during the tenancy, will help significantly in dealing with make good issues at the end of the lease. When the condition of the property at the commencement of the lease is identified, a schedule of condition (both photographic and descriptive) should be undertaken and specifically attached to the lease in agreement with both parties.  

Almost all leases provide a mechanism for the landlord to control alterations to the premises by requiring the landlord to approve alterations before they are carried out and requiring reinstatement at the end of the term. The agreement process, whether by letter or by licence, should be fully recorded. This enables accurate determination of who did what and when and again simplifies the unpicking process at lease expiry. The key to resolving make good issues is to begin the process early. The landlord should provide a summary of their understanding of the make good requirements contained in the lease one year to six months prior to the expiry of the term depending upon the length of the lease and the size of the property. 

Conflict Resolution 

When both parties cannot agree to the extent of the repairs and make good, what is the process to reach settlement? 

Generally, this is initiated by the landlord, although tenants may take separate initial advice when making long-term strategic decisions in large occupancies. The landlord should appoint a consultant to prepare a schedule of dilapidations and wants of repair setting out: 

a. Which covenant of the lease has been breached for each item of disrepair of make good
b. Location and description for each breach, eg. damaged walls
c. The remedy or repair required
d. The costs and quantity

The schedule should also include a separate summary of financial claim, which may include fees and loss of rent and property charges borne by the landlord for the make good program. This is traditionally forwarded to the landlord’s solicitor for checking and serving to the tenant. The tenant responds either directly or through a consultant and negotiation proceeds to either settlement or to two financial positions. A settlement is reached on, or shortly after, the joint inspection 95% of the time. If the parties cannot agree, they may decide to proceed further through mediation and, if necessary, the courts. 

Key issues to be considered by the landlord: 

• Schedule the condition of the property on commencement
• Track and approve tenant works and retain details
• Review lease covenants and obtain advice as necessary
• Identify make good issue early (6-12 months prior to lease expiry)
• Gauge the tenant response and undertake a schedule of dilapidations  

Key issues to be considered by the tenant: 

• Schedule the condition of the property on commencement
• Retain details of alterations
• Respond to landlord advice
• Retain a consultant to review the landlords claims 

Napier & Blakeley’s national team of Chartered Building Surveyors, Building Consultants, Services Engineers and Cost Planners prepare cost effective, defensible reports to quantify the risks of ‘make good’ to maximise return on investment.

For further information and a copy of our Make Good Cycle data card, please contact any of the Transaction & Asset Advisory Consultants below.

If you would like information on any of our other Napier & Blakeley services please contact us at any of our offices.

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

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
Paul Mazoletti – 07 3221 8255 – pmazoletti@napierblakeley.com

Sustainable Property Solutions
Peter Frith – 03 9915 6300 – pfrith@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

Quantity Surveyors are the only construction cost trained professionals that can make sure your assets have the appropriate insurance replacement cost cover.

A Quantity Surveyors purpose is to predict and manage construction costs. They are specifically trained to do so and they don’t value, they don’t build, they don’t design, they don’t buy and sell property. They are independent and professional consultants.

So here’s a quick list of Property Reinstatement Cost Assessments do’s and don’ts :

Do’s:

• Make sure you’re not under or over insured
• Include all relevant costs in your insurance
• Estimate costs based on current market rates
• Escalate costs going forward appropriately
• Consider the time involved to demolish, re-plan and re-build
• Include costs for professional fees for re-design
• Consider cost not ‘value’
• Assume nothing, as risk is risk, and risk management is good
• Be nice to your family and friends when they ‘offer you construction advice’

Don’ts:

• Don’t forget to contact us to assist you

Napier & Blakeley’s Quantity Surveyors prepare reinstatement cost assessments for billions of dollars worth of properties every year, including many of the largest property portfolios and our knowledge and experience in this area is second to none.

So call us today to make sure your property insurance needs are covered.

Contacts

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

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

Property Depreciation
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

Napier & Blakeley have assessed, negotiated and managed ‘make good’ costs for many years, including benchmark data to help inform future strategy.

To manage large portfolios, property and lease profiles are reviewed and sampled to quickly determine ‘make good’ obligations and the cost for returning the property to the required condition.

Costs and square metre rates from the sample are risk adjusted against Napier & Blakeley’s independent bench mark data and applied to the leased portfolio.

Features and benefits :

• Quick and cost effective assessment
• Detailed samples to test assumptions
• Independent benchmark data from hundreds of actual ‘make good’ scenarios
• Confidence in forecasting budgets for physical works or negotiated cash settlements
• Meets accounting needs and compliance with financial reporting standards
• Costs can be provided at a tenancy, property, regional and portfolio level

See the pie charts for a breakdown of ‘make good’ costs across the sectors.

Napier & Blakeley’s national team of Chartered Building Surveyors, Building Consultants, Services Engineers and Cost Planners prepare cost effective, defensible reports to quantify the risks of ‘make good’ to maximise return on investment.

For further information and a copy of our Make Good Cycle data card, please contact any of the Transaction & Asset Advisory Consultants below.

If you would like information on any of our other Napier & Blakeley services please contact us at any of our offices.

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

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
Paul Mazoletti – 07 3221 8255 – pmazoletti@napierblakeley.com

Sustainable Property Solutions
Peter Frith – 03 9915 6300 – pfrith@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

The End of Financial Year has come and gone and the 31st October is lodgement day.  So there is less than 2 weeks to get your Depreciation Schedules in place.

We can assist you, guarantee you get maximum deductions and also be fully compliant with the A.T.O. as we are Registered Tax Practitioners.

Napier & Blakeley, the first Property Depreciation Company and still the best – just ask your Accountant.

Contacts

Call Napier & Blakeley today for assistance with your Tax Depreciation Schedule or any other Napier & Blakeley services at any of our offices below:

Property Depreciation & Insurance
John Mathew – 03 9915 6300 – jmathew@napierblakeley.com
Peter Guerra – 02 9299 1899 – pguerra@napierblakeley.com
Raymond Yen – 02 9299 1899 – ryen@napierblakeley.com
Paul Mazoletti – 07 3221 8255 – pmazoletti@napierblakeley.com

Transaction & Asset Advisory
Rob Howells – 03 9915 6300 – rhowells@napierblakeley.com
Alastair Walker – 02 9299 1899 – awalker@napierblakeley.com
Peter Osborn – 02 9299 1899 – posborn@napierblakeley.com

Sustainable Property Solutions
Peter Frith – 03 9915 6300 – pfrith@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