By Shawn Sellick – Principal Mechanical Engineer.

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I recently worked with a leasing agent who had signed a new tenant to a building lease only to discover that the installed building services of the office space didn’t actually match those indicated in the leasing agreement.

In this instance, the facility was supposed to include a dedicated tenant outdoor air riser, however, on closer inspection following the signing of the lease, it became apparent that this wasn’t installed.  The result? For this agent, it was some expensive rework at their cost. In other instances, it can mean that the entire lease agreement becomes void.

As building services engineers, we’re often contacted by leasing agents and tenants who, after signing a lease, are confronted with installed building services that are not as anticipated. Why does this happen?

The most common problems in leasing agreements

When it comes to mismatched building services and expectations, the most common problems we see tenants dealing with are:

• Lack of suitable water and drainage services.
• Under-capacity air conditioning.
• Inadequate power supplies.
• Non-existent communication/IT infrastructure.
• Incorrect kitchen exhaust systems.

The identification of one or more of these problems usually leads to delays in commencing the lease, loss of revenue for the tenant, and loss of rent for the lessor. Addressing them can lead to greater expense for either or both parties, with legal action a distinct possibility. So how can this scenario be avoided?

3 important steps to ensuring suitable building services in leasing

In order to avoid this situation, it’s important that the development team, leasing team and tenant focus on three key steps.

1. Early engagement before lease documents are prepared

Key stakeholders need to be identified as early as possible, and everyone should get together to agree what services are required before any lease documents are even prepared. These stakeholders may include the:

• Lessor
• Developer / builder
• Project manager
• Design consultants
• Leasing agent
• Lessees / tenants

Developing the building services elements of the new tenancy in conjunction with all stakeholders in the planning or documentation stage helps to ensure they meet all stakeholder objectives, including:

• Facilities managers’ requirement for utility metering and plant allocation.
• Leasing agents’ requirements for market opportunities (e.g. food outlets or office space) and rating schemes such as Greenstar, NABERS, Property Council of Australia etc.
• Developers’ requirements that the building services provisions meet the project budget and are able to be procured and constructed within the timeframes associated with the program.

Clear, early discussion and communication on these issues will help ensure the building services requirements are developed to meet the desired market outcome with implications such as cost, equipment lead time, and program impacts fully understood by all.

2. Define the requirements sufficiently

Once all stakeholders have agreed on the building services requirements, they need to be developed and documented sufficiently in the leasing agreement.

I highly recommend that fit out guides and/or briefs are developed to include the necessary building services elements. Some items to consider include:

• Is the tenancy to be ‘cold shell’, ‘warm shell’ or ‘turnkey’?
• Is the air conditioning power consumption supplied from the tenant’s metered supply or the lessor’s supply? Is this reflected in the lease?
• What are the limitations of the services provided by the lessor, such as:
  • Air conditioning and ventilation capacities.
  • Power supply rating.
• Do the locations of services such as drainage and water points need to be documented?
• Whose responsibility is it to fit off sprinkler services?
• Has the responsibility for commissioning, testing and certification been defined?

3. Ensure tenants understand the leasing agreements

Many tenants will not fully understand the existing building services available in their tenancies, what is missing or insufficient, or what requirements they need to explicitly request. This can lead to significant distress.

For example, a common major issue arises when horizontal discharge kitchen exhaust systems are employed in the base building facility, however this is not effectively reflected in most leasing arrangements. These systems impose a high initial capital cost due to the requirement for tenants to install kitchen hoods with treatment systems such as UV filtration, electrostatic filters, ozone generators and the like to effectively treat the kitchen exhaust airstream. This then leads to further high operating costs due to the strict maintenance regimes on the systems to ensure they operate effectively.

However, most tenants (or their lawyers) won’t know to look for this in their leasing agreements or understand the ongoing operating costs of having it in place. Therefore, most won’t request a change to this system until they commence their fit out design process, by which time it is too late.

This example highlights the need to ensure tenants fully understand the impact of the building services types, capacities and arrangements.  This can be only achieved when leasing agents are fully aware and conversant of these issues, and openly communicate with the prospective tenant about them. Specific briefing sessions between consultants and leasing agents for non-typical or high-risk arrangements would assist in this process. This will ensure that tenants can make informed decisions about their building services fit out before any agreements are signed.

 

If all three steps are adopted, there will be a significant improvement in the delivery of suitable building services that satisfy both the lessor and tenants’ requirements, increasing the likelihood that the tenant will stay longer term.