It's a simple message. Hopefully the majority of people reading this will nod in agreement, and pick up the phone to Pinnacle Building Consultancy and instruct us to produce one. But for those of you who disagree, or who just want to know why they're so important, read on.
What is a Premises Condition Report?
A PCR, or schedule of condition, is a pretty simple report. It's based on a whole load of photos taken at the start of a commercial lease, capturing the condition and layout of a premises so it can be referred back to at the end. The photos should be supported with reasonably detailed descriptions, particularly of the key building elements, so that a clear record of the overall condition of the property is established.
What a PCR doesn't do is include specialist advice. If a defect is identified, a surveyor wouldn't be expected to tell you how to fix it (with the caveat of anything that might be considered dangerous). That absence of specialist advice is what keeps them simple, and relatively low cost to obtain.
Simple, but not too simple
We come across situations where there's no formal PCR or schedule of condition, but just a collection of photos taken by a lay-person at the start of the lease. Some photos are definitely better than no photos, but they need to be taken by someone who knows what to look at, and how to use accompanying text to support and enhance the images.
There will also be parts of the building that need closer documentation than others, depending on the likelihood of damage or alteration over the course of the lease.
The text needs to support the photos clearly, describing location or denoting exactly what is being shown. There's nothing more frustrating than reviewing a badly formed PCR with photos that can't be placed within the building, or that aren't clear as to what they're actually showing.
So what are they used for?
PCRs are invaluable tools in avoiding lease end disputes. One of the principal reasons for a make good, reinstatement, or dilapidations dispute is a difference of opinion between landlord and tenant on what condition the property was in at the start of the commercial lease. The majority of disputes occur on leases where there is no PCR or schedule of condition. It's rare to have a dispute where a good quality PCR exists, and where a dispute does occur alongside one, it usually turns out the PCR wasn't up to scratch.
When we're advising a tenant ahead of lease end on their likely lease reinstatement obligations, having a PCR makes it significantly easier to give clear, certain advice. Removing that ambiguity makes it more likely a tenant will comply with their obligations before handover, a big bonus for landlords. And if the tenant doesn't comply, they're more likely to enter financial negotiations with a realistic expectation of what they owe, an even bigger bonus.
A note for commercial real estate agents and property lawyers
We know your priority is getting deals across the line. A PCR doesn't have to slow that down. We turn them around in days, and the agent or lawyer who recommends one is the one who really looks after their clients. After all, the two main standard commercial lease formats in New Zealand (the Law Association Deed of Lease and the Property Council commercial leases) include for PCRs with no redrafting required. And the lease end disputes that damage landlord and tenant relationships, and by extension yours, almost always happen on leases where there was no PCR. Recommending one at the start of a commercial lease is a small thing that protects the goodwill you've worked hard to build.
So what now?
If you've already entered into a commercial lease without a PCR, all is not lost. For landlords, we can review all other documentation, survey the building, and produce an accurate lease reinstatement schedule. For tenants, we can review the lease obligations themselves and give you a clear picture of where you stand, and where you might be exposed. Either way, it's worth having a conversation sooner rather than later.
If you're a landlord, tenant, or commercial real estate agent looking to start a new lease, get in touch and we'll put a PCR together in a matter of days. You can contact us at info@pinnaclebc.co.nz.