Property Condition Assessments are often carried out when entering into a lease and at the conclusion of a lease. The PCA can be undertaken on behalf of the lessee or the lessor, and is sometimes undertaken for both, prior to entering into a lease agreement.
For a tenant, a PCA prior to leasing is just as important as prior to purchasing. When leasing, the tenant will likely be responsible for maintaining some or all of the building systems. For leasing a single tenant building under a triple net lease condition, the tenant is likely responsible for the repair and maintenance of all systems, typically as “a prudent owner would.” If the building has not been well maintained or there are several systems at the end of their life expectancies, there is greater risk of unforeseen expenses for the tenant.
- Understanding the condition and level of maintenance of the building structure and major systems
- Knowing of major repairs or replacements that may be necessary over the term of the lease and their associated costs
- Validation of representations made by the owner about the property (e.g. the building has a new roof)
- Greater likelihood of meeting lender’s requirements for a loan may require a PCA
- Greater confidence and peace of mind in decision to lease
For a building owner, a PCA prior to a new tenant moving in establishes the existing condition of the property. Thus, there is a fair baseline to which the tenant should leave the premises at the conclusion of the lease. This helps to protect the owner as the true condition of the building at the start of the lease has been documented.
At the conclusion of a lease, there is often an obligation for the tenant to undertake certain repairs, where there has been deferred maintenance. There may also be an obligation for the tenant to bring the building back to a base condition or condition the building was in when they moved in. If there was a prelease lease inspection report done, this is somewhat easier to establish.
However, if there is no prelease report, or there is disagreement as to what repairs are required, a post lease PCA will help to resolve the situation and bring a close to the lease. In this case, an unbiased report can serve both the owner and the tenant.
Pre-lease and post-lease PCAs often exceed the ASTM Standard in that clients will often want to know of costs for repairs that are routine maintenance items and costs for repairs that are less than the $3,000 threshold provided in the Standard.