Ensure your expectations match your landlords and you’re not left in the cold.
Time and time again, tenants advise us the heating, ventilation, and air conditioning (HVAC) temperate fluctuates, that it dosen’t work as it should or that the lifts are slow and regularly break down.
While you can’t prevent things from breaking you can put parameters in place within your lease to protect yourself both now and in the future? Here's how…
Starting with Due Diligence
The best place to start is with some technical due diligence. This needs to be done on any new or existing building you're looking to lease. This extends to the full range of the building's condition including; leaks, the building fabric, lifts, HVAC, as well as the seismic risk of the building.
During your lease transaction two key documents, a BPS and BPC will help determine any areas you should be aware of, and set out some parameters to provide you the tenant with a point of reference and some protection.
A BPS - what is it?
The Building Performance Specification or BPS is a performance-based specification that sets out the minimum performance standards of a specific building, primarily in relation to the key building elements (like structure) and the key building services (like HVAC, lifting, fire, lighting and the like). It's designed to give the design and engineering team the information needed to design and respond appropriately, rather than being prescriptive about a particular solution.
Why is a BPS significant?
The BPS plays an essential role in determining the building’s interior and exterior design, the specific building services required and the specific building compliance obligations to be met by the landlord over and above the NZ Building Code or other legislation. Depending on the buildings’ use and quality, this can also include increased operational efficiencies, sustainability and enhanced seismic resilience.
The BPS should be a schedule to the Development Agreement or Agreement to Lease document (the document before the lease commencement and Deed of Lease being finalised and signed) and support the architectural plans setting out any works to be completed before lease commencement (by the landlord). This document provide an outline of the product the tenant is leasing.
The overall level of building performance should align with the general commercial terms, i.e. your rent payable should reflect the building quality. The due diligence process will determine if there are inconsistencies or shortfalls and identify what works are needed to meet an acceptable standard. It is a bit like getting a pre-inspection test done on a car before buying it and identifying what work is needed.
What about the BPC?
The Building Performance Criteria or BPC sets the performance criteria that can be referred to and used as a measurement tool of how well the building services operate during the lease and renewal terms (compared with the BPS which sets out the level of performance the building will be designed and built to).
The BPC is inserted as an appendix to the Deed of Lease and expands the landlord's repairs and maintenance obligations.
Why is a BPC important?
The current Auckland District Law Society Deed of Lease requires a landlord to "keep and maintain building services to good order and repair". Having a BPC in your lease sets out the right process for repairs and a focal point if there is a failure. Without this type of document, tenants need to rely on the landlord's standard maintenance provision, which often comes down to interpretation. In our experience, the more specific you can make the landlord's maintenance obligations through the drafting of the Deed of Lease and the inclusion of a BPC, the less likely there will be ambiguity about who’s responsibility it is to maintain the elements of the building.
Our advice to tenants is that, while confirming the rental value and lease term is key, understanding what you are leasing, ensuring the building service performance and longevity of the building structure, fabric, services is just as critical.
How do I fit all of these documents into a transaction?
As noted earlier, the use of the BPS varies depending on whether the project is for a new build or for existing premises. In any event, the content of the BPS needs to be tailored.
With existing premises, you are generally working with the current building and building services, so the priority becomes determining; an acceptable baseline performance standard, the age of the equipment, the proposed level of performance required, any deficiencies, and any planned works needed. The agreed BPS becomes a record of information and sets the precedent for the building and premises performance in the future.
New Build Options
Under a new build scenario, either the developer has a preprepared specification document or as part of the broader procurement process, an approved BPS is issued to the market. Either way the process to develop a BPS needs to highlight whether the desired performance and quality for the building /premises complies or does not comply. The agreed BPS is then attached to the Development Agreement and is supported by a concept or preliminary design for the development. The BPS then becomes the reference point during the remaining design stages, in preparation for the final plans and specifications.
Whether it is an existing building or a new building, developing a fair but robust BPS provides the framework to develop the BPC
What should a tenant do?
The best approach for a tenant is to do their due diligence by spending time (and some money) understanding the level of building performance and being clear on the responsibilities between the landlord and tenant. Several different professional advisors can provide input – the key is how it is all managed.
Too often, tenants take the easy route and assume the building will perform or trust the landlord that an item is covered. This lack of detail automatically creates a level of uncertainty. Having a BPS/BPC ensures there is a reference document, an understanding of the building, and that everyone is clear on their responsibilities.
How we can help…
Given our understanding of the importance of each of these documents, and which advisors need to be involved, we're well-versed at working with developers and landlords to extract and manage information and help fairly position the building performance documents; while also keeping in mind that the level of performance and quality needs to align with the rental payable and terms being discussed.
Take a look at your lease… what have you got? Do you have any performance issues? If you are thinking about new premises, talk to us first before you start your process so we can design the best process to optimise your commercial leverage and get the best outcome, commercially and building-performance wise.