While commonplace in the UK, condition surveys and terminal reinstatement assessments are not commonly part of the lease process in New Zealand. However, they do tie into the building maintenance lifecycle and where completed provide both landlords and tenants with protection around commercial leasehold repair obligations, preventing lease disputes.
Traditionally, when a lease comes to an end, landlords have borne the costs, however this is changing.
We’re increasingly seeing managers of property portfolios advising their clients to do the following:
When entering into a lease:
Both landlords and tenants should carry out a condition survey to show the condition of the building/premises at the start of the lease. The schedule of condition should be appended, as a record, to the lease, so that if at a later stage, there is a dispute, you can refer back to this to support your claim.
An added benefit to landlords is that knowing the condition of your property at the start of the lease helps plan for maintenance, as the schedule of condition can serve as an initial stock take to record condition.
Prior to a lease expiring:
A schedule of reinstatement should be compiled, typically, 6-12 months before a lease expires (or, if a tenant wants to procure and manage repair works themselves, they may wish to carry this out earlier). Essentially, the best advice is to be as proactive as possible and allow as much time as practicable when approaching the end of a lease, to encourage early engagement between the parties.
A schedule of reinstatement documents the state of disrepair of a property and the required remedial action, where there is a potential leasehold responsibility to rectify the condition of disrepair and or for reinstatement. It is often referred to as a Terminal Schedule of Dilapidations or Terminal Reinstatement Assessment. It involves a Building Surveyor reviewing all documentation relating to the lease entered into, as well as any condition surveys carried out, and then surveying the premises to assess items requiring repair, redecoration or reinstatement.
This provides both landlords and tenants with a greater degree of certainty around their repair and reinstatement liabilities.
Part of the process of negotiating reinstatement is for the landlord to provide a list of items in a format that allows for a tenant to respond, or vice versa. Because it will refer to the lease, it will need legal review prior to being served on a tenant.
Best practice is to set up a ‘Scotts Schedule’: a list of alleged breaches with the required work against each. It is a working document that will have columns added to it as each party responds, ensuring everything is in one place, which hopefully encourages clear proactive negotiation between the parties.
This isn’t the only form of repair notice that can be served on a tenant. There is also what’s known as an Interim Repair Notice or Interim Schedule, which details items of disrepair arising from the tenant’s failure to comply with a repair covenant identified by the landlord during the term of the lease. This can be served at any point during the lease, after commencement. The Interim Notice/Schedule generally applies to items, which will cause further or accelerated damage to the property if not remediated in the short term.
In summary, this process helps landlords and tenants:
- to interpret repair or reinstatement liabilities to minimise financial exposure prior to termination.
- to ensure that a party responsible for a particular item of repair, redecoration or reinstatement completes, or pays for the associated work, as opposed to this simply forming a back-log of capital expenditure for landlords to address.
- to agree with the other party(ies) the appropriate scope and cost of those responsibilities, so this is clearly communicated and formally agreed.
- with lease renewal negotiations.
- to resolve lease disputes.
If you would like to understand the current condition of your premises or wish to compile a schedule of reinstatement, please call us on T: +64 (0)9 912 2550 or E: email@example.com