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With the sudden amount of business closures and surrendering of commercial leases, there are many things Landlords need to address and co-ordinate to manage costs, risks, and maximise return.
For example:-
Independent Make Good Assessments
‘Make Good’ obligations are unlikely to be met by Lessees where leases are surrendered or determined due to financial distress, however engagement of independent assessments by Landlords are recommended to provide a basis for Landlord insurance claims and / or claims against receivers and managers of a distressed Tenant.
Maintenance of Systems required in Fire and Emergency
Maintenance of fire safety systems is required to be carried out regardless of whether property is occupied or vacant. While the Tenant may have been managing these services during occupation, where assets have been abandoned and / or surrendered, Landlords need to ensure maintenance continues in accordance with regulatory requirements which vary by State. Failure to meet these obligations could result in a disaster and significant loss. It may also impact on a Landlord’s ability to claim against their insurance policies.
Routine Maintenance and Energy
It may seem logical to shut down base building plant during unoccupied periods, however in certain circumstances, continued operation and routine maintenance of non-essential base building plant can be a less costly option. Independent cost-benefit assessments are recommended to help identify potential cost savings through risk prevention in these circumstances. If your building is partially occupied there are ways to minimise your central plant energy consumption servicing unoccupied areas.
Issues surrounding maintenance of structures and fabric during vacant periods is equally important as maintaining building plant.
Ongoing inspections and early attendance to defects associated with structures and fabric is paramount, particularly in the wetter months where water and wind related damage can be prevalent. If left unattended initial minor issues can result in serious and costly damage not only to the building structure and fabric, but also indoor air quality, making the asset unfit for occupation.
To manage risk and reduce costs associated with unattended damage, monthly inspections of vacant areas is recommended.
Independent Condition Assessments
In preparation of lease renewal, Independent Condition Assessments are essential to provide the basis for condition to mitigate future disputes regarding make good obligations. The independent document can be signed by both parties and attached to the Lease.
Refurbishment Opportunities
Unplanned vacancies provide the opportunity to carry out base building upgrade works that are typically disruptive and / or impossible during occupation. These works include, for example, removal of hazardous materials, lobby and amenity upgrades, HVAC and lift upgrades, common area painting, etc.
Base building upgrades during vacant periods provides many cost benefits through improved accessibility, and of course the risk of rent abatement and health and safety claims by tenants is removed.
Tax Write Offs
Where tenant fitout has been abandoned, and of no value to the Landlord, assessments to enable disposal / write off of the assets may apply.
Biocleaning
Where positive cases of COVID-19 have been reported by Occupants of commercial tenancies, biocleaning may be required. Given the rapid changes in the strategies and management of the virus, it is important that Landlords ensure that their cleaning strategies are in line with current guidelines.
If you would like further advice on any of the above, please contact:
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