With the aim of achieving low intensity real estate property management and minimising the face value of outgoings charges to better attract tenants many landlords and their advisors may seek to place the onus of landlord real estate plant and equipment servicing, repair and maintenance onto their tenants.
Such an approach may well operate successfully with large tenants having active work practices and risk mitigation strategies that ensure landlord real estate plant and equipment is appropriately maintained to safeguard their own interests however this may be less the case with other tenants who may not have adequate systems in place.
Real estate plant and equipment items in isolation may not appear significant hence the willingness of landlords to pass responsibility to the tenant however the capital replacement costs resulting from inadequate or poorly timed maintenance when accumulated over the course of holding a real estate investment can be material.
Periodic servicing, repair and maintenance obligations may rank differently in matters tenants address in their normal course of business which may have implications around long term capital failure. The practical implications of enforcement of the tenant’s obligations and the resultant cost recovery can then become a contentious matter.
It may also be technically difficult to justify that a tenant’s real estate plant and equipment maintenance approach is in effect the cause of a capital failure and therefore exposes the landlord to costs which may have been avoided or delayed if the landlord took greater responsibility to appropriately maintain and recovered such costs as outgoings.
We must remember that although certain real estate investments may appear straight forward landlord real estate plant and equipment can in fact be extensive and include air conditioning systems, roller shutter doors and their motors, dock levellers, automatic gate motors along with more specialised items such as gantry cranes, cool room and freezer plant and equipment, air extraction systems and so forth.
When transferring such responsibility to a tenant, to safeguard the longevity of their real estate plant and equipment and to avoid capital expenditure time bombs landlords must continue to consider:
• Their systems to monitor the appropriateness of the tenant’s contractors so far as their skill level and professionalism.
• If the tenant is in fact servicing the real estate plant and equipment adequately and with sufficient frequency.
• If the tenant is providing reliable documentation attesting to the proper maintenance of such items.
• Whether the nature of repairs are reactive only or incorporate preventative maintenance.
Management intensity for landlords to simply retain responsibility for real estate plant and equipment maintenance with transparent cost recovery as outgoings may be no greater than transferring such responsibilities to their tenant when addressed with equal vigour yet come with the peace of mind that plant and equipment items are well maintained and longer term capital expenditure time bombs are avoided.
For property management advice or to review appointing Property Sales and Leasing as your property manager please contact Tod Anderson on 0412 350 285.
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