What will you do in your summer holidays?
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.
What is the condition of your Schedule of Condition?
With the recent downturn in commercial property activity now is not a time to lose sight of good property management, especially in relation to the Schedule of Condition in the terms of your lease.
A crucial component of a good leasing strategy understands the importance and purpose of a Schedule of Condition. All too often Make Good negotiations are made more complicated and protracted, not to mention more expensive, because there is no record of the condition of the premises at lease commencement.
Whilst the general purpose of a Schedule of Condition is acknowledged in the market place, their value as an effective tool in preventing disputes and removing ambiguity during the negotiation process is less understood and appreciated.
The level of protection a Schedule of Condition provides depends on a number of factors, namely the accuracy and detail of the schedule, the length of the lease and the lease obligations. At worst a poorly prepared Schedule will offer little or no protection to the tenant if it fails to properly record the property’s condition in the context of the lease obligations, is too ambiguous or, simply, is improperly or poorly referenced to the lease.
Recently N&B were instructed by a tenant of a large dilapidated warehouse after they were served with a Final Schedule of Make Good totalling more than $1,000,000.
The lease term was for 5 years and did not have the protection of a Schedule of Condition. Constructed in the early 1970’s, poorly maintained for longer than the preceding 5 years, the yield up clause in the lease required the tenant to deliver the property to the landlord in the condition which the lease stated as being “Good”, which would certainly have not been the case.
Fortunately for our client, we were able to reduce the claim to circa $200,000. If a Schedule of Condition was prepared at lease commencement, however, the agreed settlement would have been negligible.
