New Premises?

Buildings are an essential part of any business; name a business that doesn’t require the use of property? They can be your best friend or your worst enemy. When acquiring a new property for your business, you’re probably focused on the location you want to be in, whether the building fits in with the company’s image and how much space you require. You may have even considered aspects such as transport links and parking allocation.

You’ll have a lawyer and an agent on board. So, she’ll be, right? The reality is that, although essential, lawyers and agents can only go so far in protecting your business interests. It all comes down to the level of risk that you’re willing to take. It is a common occurrence that we will get involved when the premises aren’t working, for a variety of reasons. Being informed early on would mean that tenants and investors would do their homework before purchasing – it’s a smart and economical decision, in the long run, to spend a little now and understand the risks involved than have them suddenly disrupt your business plan in 5 years time.

So what risks are we referring to? Well, if you’re a tenant and leasing the premises, these will include your lease obligations to maintain, repair and decorate the premises at the end of the specified lease term.

If you haven’t done your part at the end of the lease term, you can expect either a bill and/or potentially a legal claim from the landlord. In most cases, the landlord does complete most of the work however some of these costs will be recoverable.

Your contributions to what are called outgoings can potentially be significant, even though the figures you’re given for the last few years seem manageable. Your business also has numerous decisions to undertake with regards to individual additions to the premises, whether that is new signage or a full commercial fit out to suit your company’s requirements. Unless specified otherwise, the landlord can charge you for putting the premises back to its original condition at commencement of the lease. Undertaking an adequate premises condition report at the commencement of your lease term avoids any doubt regarding your responsibilities. Although this may seem ‘obvious’, after being located at the same premises for 10 or 15 years, it is near impossible to recall what condition the premises was in at the commencement of the lease.

It’s also not guaranteed that everything will run smoothly. You may have had to undergo additional work to your fit out that wasn’t expected or accounted for or possibility the interruption to your business if the landlord has to undertake disruptive works to the building. There is even the possibility that the premises itself doesn’t end up meeting your business's requirements.

The outcome doesn’t have to be left to chance. Engaging in sound technical due diligence and expert advice will give you a good indication of what you’re in for. If you’re going to seek the advice of a chartered building surveyor who will also be responsible for managing your fit out works, you will have someone who understands your integrated needs from the start.

Premises are considered by the large majority a medium to long term investment for a business and are often the largest investment in monetary terms that a company will make and therefore it is important to consider your potential and future needs, not just your current ones. Do the premises have the capacity to accommodate further growth or change? That could be a question of whether the floor can take a mezzanine to increase the usable area in an industrial unit or whether the HVAC can take an increase in occupation density (staff numbers) in an office. To put it plainly, it could be the difference between whether or not your business has to relocate or stay put. Think about your company’s long term business plan and where you think you might be heading and the implications this may have for the premises.

What about the benefits for those with the forethought to look? A key amid these are sustainable buildings. These often do command premium rental, however they do so for justified reasons. The leading reason is the lower associated running costs with that building. Energy efficient buildings, all things being equal, have lower running costs and with energy costs only getting more expensive, the rewards are only going to get better with time.

Despite how you may feel about sustainability, it can be an emotive point for people, including your clients. Occupying recognised energy efficient or “green” buildings helps enhance your company’s profile and public image, helping create a point of difference between them and their competitors.

The least tangible benefit and possibly the most under appreciated is the impact of these green buildings on workplace productivity. Studies around the world are increasingly concluding that green buildings are nicer places to work and that their occupants are better off. Businesses that occupy them appear to experience increased productivity, lower absenteeism/sick days and increased staff retention. When you sit back and consider that your staff costs have the potential to be ten times your property costs, a 1% improvement in productivity could equate to a 10% reduction in the premises costs. What benefits would a 10% productivity improvement contribute to? The increasing shift of the larger commercial tenants in Auckland from older B grade stock to newer A grade buildings such as Datacom’s waterfront premises highlights this increasing trend.

You may be thinking about purchasing or leasing premises that haven’t been built yet, usually through an agreement to lease or purchase. This can potentially be very risky as you don’t have a physical building to evaluate and interpreting how the premises will work off the plan is more difficult than it seems. Unless you have negotiated a clear clause in your agreement to lease that allows you to walk away unscathed, technical and legal advice should be considered indispensable.

Technical due diligence will assess the building design against your requirements and identify any design, construction or procurement risks. To have maximum benefit, your adviser needs to understand your current and future needs, your proposed lease obligations and have a technical understanding of how buildings work (and fail), how they are maintained and the associated costs involved. This happens to be the particular skill set of chartered building surveyors – a profession that has developed in the UK over the past fifty years.

To find out how Prendos can assist with your commercial building, please contact us or visit our commercial property consultancy section of the website.

For more information, please feel free to contact us at prendos@prendos.co.nz or call 0800773636.