A Medical for your Premises

The building survey is an essential part of the process when acquiring premises. Alan Edge, a director of CS2 , explains…

Most companies apply thorough and diligent selection procedures when employing key members of staff. After all, an organisation’s personnel are considered by many to be its most important asset. Applicants often undergo several stages of interviews, psychometric tests and even a full medical in an effort to get the right person for the job. However, the same degree of rigour is rarely applied to another key area – the acquisition of business premises. Taking on the leasehold or freehold of a property is a significant financial investment for any organisation. In my experience as an adviser on property issues, many businesses fail to approach the process with the care it merits.

The first and most essential step is to commission an extensive building survey – in fact, think of it as the equivalent of a medical for a job applicant. Neglecting to organise a survey can prove a costly mistake in the long term and may tie you to a building with serious operational problems as well as unforeseen costs for repairs and maintenance. So, whether you are acquiring a retail unit, an industrial space or an office block, it is essential that you take the proper advice from suitably qualified professionals. In short, this means a chartered building surveyor.

A building survey will determine the condition of the building and analyse the full extent of any current defects if indeed there are any. Not only does this give you a clearer picture of exactly what you are getting for your money, but the results will help you to decide whether or not to proceed with the acquisition of the property. It can also prove a useful tool when negotiating terms with the landlord or vendor with regard to price or added incentive.

There are different types of building survey and which one you should commission will vary according to different factors. The amount of detail and depth of investigatory work will depend upon a variety of factors such as:

• the building type
• whether it is to be taken freehold or leasehold
• the length of the lease
• how the acquisition is financed.

The building inspection report comments upon the structure and fabric of the building and its various internal and external components. It is also vitally important to ensure that any roof areas are inspected if applicable, as the majority of problems experienced with buildings emanate from defective roof coverings and damaged or poorly maintained rainwater goods.

You also need to be aware of what the building survey doesn’t include. As surveys rarely report in detail upon any mechanical or electrical items within the building, you may wish to specify to your surveyor that this be included. This can be particularly important as, if required, this sort of equipment is often expensive to repair, maintain or replace. If there is a considerable amount of mechanical and electrical equipment within the building, it is strongly advisable to include it within the report, so ensure that you brief the surveyor accordingly so that they can arrange to bring on board the appropriate specialist consultants.

In addition, whilst a building survey provides important information about the fabric and structure of the building in question, the surveyor may also highlight certain issues and questions that you need to be answered, or even take legal advice on before proceeding with the acquisition of the premises. For example, in terms of the safety of the building it is worth finding out if there is there a file available for the building. This will contain information pertaining to previous maintenance or repair work, a bit like a ‘user manual’ for the building. Equally in terms of safety, under the Control of Asbestos at Work Regulation 2006 (CAWR 2006) there is a duty to manage asbestos in non-domestic premises and an asbestos report or register should be available for the building.

On the construction of the building, since 1 October 2008, on completion of construction, lease or sale of all UK commercial property will require an Energy Performance Certificate, so it’s a necessity to check that the building has one. Meanwhile, the current planning status of the building should also be ascertained. Finally, it should be decided who will be responsible for insuring the building and the associated costs if the building is to be taken leasehold. These are the sorts of issues that you may not have considered but which an expert can alert you to. These are often also the issues which, if not dealt with, could cause significant problems later on.

Other aspects of maintenance that you might want to consider include schedules of condition and planned preventative maintenance. If completed at the outset these could save you cost and inconvenience later on. If the building is to be taken leasehold, future dilapidations issues are probably not very high on your agenda, particularly if the lease end is some 10 years away. However, cutting corners at the outset can have serious repercussions when the time comes to hand over the premises so it is important to consider dilapidations from the word go.

For example, your lease may stipulate that the tenant is required to yield up the property in better condition than it was when the lease began. Therefore, where appropriate and at all possible, your surveyor should prepare a Schedule of Condition which should be attached to the lease in order to restrict the repairing liabilities at the end of the term. In order to save costs upfront, many potential tenants baulk at paying professional fees for the preparation of a Schedule of Condition. Yet this is often a false economy, as a comprehensive schedule with plenty of photographs and annotation can save a tenant thousands of pounds at determination of the lease.

Whether the building is being taken leasehold or freehold, it is a big commitment both on a financial and operational level. In order to keep the property in good condition throughout the life of the lease or in order to retain the value of the ‘asset’, regular maintenance and repairs should be carried out as a matter of course. A chartered building surveyor will be able to prepare a planned preventative maintenance schedule or PPM which will include day-to-day items as well as larger cyclical works such as external decoration that should be carried out at regular intervals. The indicative costs that are included within the PPM can help you to budget more effectively and taking this proactive approach to maintenance will almost certainly save extra expense at a later date.

Acquiring businesses premises, whether they are taken leasehold or freehold, is undoubtedly a complex process and should be treated as such. There are potential pitfalls, but many of these can be easily avoided with thorough preparation in the form of the building survey. Treat your acquisition as you would any other major financial investment: be clear about what you want, do your research and take advice from the experts to ensure a successful outcome.