- Though common in residential property, inspections are relatively new in commercial real estate
- An Initial Property Condition Report occurs first followed by routine inspections
- There is usually a Pre-Final Inspection - a tenant often requests for this in order to avoid any surprises
Property inspections are an integrated concept in residential property management. However, it is still a relatively young idea in commercial real estate, and has only been a standard service for a few years.
Different inspections have other purposes, and using them in the mix provides excellent service to the stakeholders.
In this article, I review the different types, their objectives, and the benefits it brings to all parties involved in the real estate transaction.
Initial Property Condition Report
Many well-prepared lease documents already cover the make-good responsibilities of the tenant.
At the start of a tenancy, the property manager goes on-site and describes the property in detail, accompanied by many photos to give a good idea of how the property is presented.
A property condition report describes how the landlord handed the property to the tenant and helps to provide answers to questions or disputes should they arise.
For example, the lease might require that the tenant provides an empty office when vacating the property.
However, the tenant argues that the Air conditioning split system was already there and should stay with the property.
Upon review, the property manager finds out that the tenant has a point, reports back to the lessor, and requests instructions. The lessor overrules the lease and allows the lessee to leave the air conditioning with the property.
Building relationships during a tenancy is pivotal in commercial real estate. Carrying out annual inspections is a productive tool that a property manager can use.
It is ideal for reporting to the client that the property is well-maintained, or in fact, the opposite and request instructions on how to proceed. It is also a perfect way to get to know the tenant better and discover their challenges and how they operate their business.
For example, you know from the lease that the tenants produce glass, but only after meeting with the tenant you can learn how they process things and where certain things happen.
Knowing the property and the tenant will help when there is a need to resolve future issues. In general, in commercial real estate, these inspections occur once every 12 months on average.
A passionate property manager will often go to the site when needed. By visiting the property, you know how things operate and can save the tenant costs.
For example, once a tenant reported that their office window was not closing and asked for a handyman to assist as the window was faulty. Instead of sending a maintenance person out, I asked them to wait a few days for me to visit their office when I was in the neighbourhood and look at it myself. I knew the window and closing mechanism type and managed to operate the window.
Although embarrassed by the situation, the tenant appreciated the effort and the associated savings I offered them.
Towards the end of the tenancy, the property manager could carry out pre-final inspections. Usually, the tenant request this inspection as they would like to understand their obligations and avoid surprises after handover.
While the tenant is still in occupancy, the property manager meets with the tenant to discuss their commitments as per the lease.
Pre-final inspections could occur from the moment the tenant decides to vacate in a few months and are planning their vacate strategy, or one or two weeks before handing over the property, to obtain a list of the final items still in need of attention.
Sometimes, the pre-final inspection happens early on and towards the end. Both landlords and tenants benefit from pre-final inspections. It helps the tenant understand their obligations and increases the likelihood of handing over the property as per their lease to the landlord. Other than a final inspection, which is the last check to protect the landlord.
Once the tenant believes they have completed all their make-good obligations near the end date, they will be ready to hand over the property to the landlord.
The property manager will meet with them on-site for the handover, or the tenant will return the keys to the office.
Upon receipt of the keys, the property manager will inspect the property and follow a checklist to ensure the property is handed over properly and is ready for the new occupant. If there are still items outstanding, the property manager either allows the tenant to return and complete their obligations. Alternatively, the property manager rectifies the responsibilities on behalf of the tenant and charges them for reimbursement.
Once the tenant has completed the duties to the landlord’s satisfaction, the property manager will inspect the property to ensure the items that need further attention have been completed before signing off.