Inspection Tips and Tools For Commercial Investment Property

When you inspect a commercial, retail or industrial property, it is the physical aspects of the property that should be well explored and documented. These matters below are some of the key issues for you to review before you complete the property listing or promotion.

1. Tenant compliance to physical building use: The tenants to a building may be obliged to undertake compliance to the way in which they use the building. Such matters will be detailed in the lease. You should read the leases in this regard to identify these things.
2. Antennas and aerials: Some buildings feature communication antennas and aerials. In the first instance these should have been approved by the landlord and in some circumstances the local planning authority. The antenna or aerial installation will have been made on the approved structures with supporting plans and documentation together also with access restrictions and risk signage to prevent people in the area being exposed to radio frequency radiation. You need to know that these things have been correctly handled.
3. Asbestos: It is common knowledge that asbestos is a hazardous building material that still exists in buildings constructed prior to 1990. From that time onwards, it was largely avoided and prohibited as a construction material in most buildings. Originally it was used as an insulation material in areas including electrical switchboards and also on the beams and columns of the building structure as a fire resistant material. It is therefore quite possible that you will sell or lease a building in which asbestos is still located. In your town or city there will be legislation rules and regulations that apply to the existence of asbestos. It is necessary that you get information from the building owner regards compliance to Legislation in this regard.
4. Asset replacement value: With commercial real estate properties, it is common for regular valuations to be undertaken by the building owner for insurance purposes regards asset replacement. This type of valuation would be applicable in the event of a fire or building disaster. You can also get building replacement values from information sheets provided by local quantity surveyors. You can usually obtain these from the internet. Importantly the construction costs and replacement value need to be applicable to your location given the costs of sourcing the construction materials and the labour.
5. Building Code Compliance: When buildings are first constructed they are done so to the current building code. As time progresses the building code changes and it is sometimes necessary for existing buildings to be upgraded to current code. A good example of this is the need for disabled access to buildings and internal disabled facilities. When you inspect and list a building you should identify if any such notices under the building code currently exist. A note of caution here; when a building is put through a major refurbishment, the planning authority may regard the refurbishment activity as a trigger for a code compliance upgrade. This can be a large cost. A quantity surveyor is the best person to consult on costs of this nature.
6. Floor and site surveys: When working with investment properties it is the internal lettable space that is of prime importance to the generation of rental and occupancy. All the leases for the tenants will be linked to the survey plans and the net lettable area therein. For this reason you should ask to see the survey plans for the building and the lettable space. You need to know that they are accurate and up to date at the time of sale or lease. Part of this process is to inspect the property with the plans so that you can identify any discrepancies. In all cases of error or concern with the plans you should get a building surveyor to give assistance and guidance.
7. As Built Drawings: Every building has a set of plans that were approved for the building to be constructed. They are a great source of information and cover, structural, hydraulic, electrical, mechanical, and lighting layouts. They are an excellent source of information on which you can base your leasing strategies.
8. Building approvals and permits: Does the building still comply with the original building permit issued by the building authority? Most particularly does the use of the property still comply with the approval as granted? It pays to get a copy of the current building approval when possible because a wise purchaser or tenant will want to see it.
9. BMU: This stands for the ‘building maintenance unit’ and is likely to exist in multi level buildings. The BMU is the device that hangs over the side of the building to clean the exterior and the windows at different times of the year. Importantly the BMU has to be safety compliant and also approved for use. When you know that the building has a BMU, it is wise to ask about its use and approvals.
10. Certificates of Occupancy: When a building is first constructed it is inspected and certified for occupancy. The certificate of occupancy is granted by the local building approval authority. From that point onward the occupancy of the building must comply with the approval guidelines. It is possible that the certificate of occupancy can be withdrawn at any time if the building is deemed unsafe or has been damaged. It is therefore something that you would question if doubts about the building exist. In such circumstances get a copy of the certificate of occupancy.
11. Development Approval: When property development is a consideration on the property, seek copy of any existing development approvals. They will stipulate the type of development that has been approved, the elements needed to comply with the approval, and the time line. Properties with existing development approvals may be attractive to purchasers that want to undertake new construction and property developments. You will also need to know if the development approval is transferable with the property to a new owner.
12. Disability and Discrimination Notices: Whilst the commercial property is simply a building constructed at a certain point in time, it is possible that it does not now comply with the current disability access codes and access provisions for buildings of that type. You need to know if any orders have been applied to the building by the building authority for compliance to new disability codes. If any orders exist, it is likely that they will have to be discharged prior to any building sale or lease.
13. Electrical Services: All electrical services in the commercial property must comply with current standards of electrical installation and maintenance. In such circumstances a contractor will normally be undertaking inspections and maintaining a log book for this purpose. If in doubt (and particularly with older buildings), call in an engineer to advise. Thermal scanning of switchboards in older buildings is a good practical processs to identify if matters of breakdown and heat could exist.
14. Electromagnetic Radiation (EMR): In some properties EMR can be generated from plant and machinery (such as the power feed for lifts or mobile antennas on the roof of the building). This then becomes a safety issue for people on site and also will be notable in the poor or erratic performance of sensitive electrical devices such as computers. When this problem is noted it is necessary to involve engineers to advise you. It is also common for barriers to be installed in the area that is involved in EMR.
15. Environmental Risks: In most locations there will be a register of contaminated sites and properties that do not comply with the environmental guidelines. Ask about this when looking at new properties. The most common issues in this regard are tanks in the basement that were used to store heating oil or diesel. They may be now redundant but they are regarded as an environmental risk and will need to be remediated.
16. Essential Services Certification and Compliance: All buildings need to be compliant with fire safety regulations. This can include, sprinklers, smoke detectors, smoke dampers, exit routes and signage, evacuation plans, fire hoses and hydrants, and the list goes on. Importantly all of these essential services systems in a building are regularly checked for compliance by qualified tradespeople. The results of the regular tests are maintained in log books on site. It is wise to question the compliance and checking process. It is something that can hold up sale and settlement.
17. Facade and Cladding: Given the large nature of commercial buildings, it is common for the exterior of the property to sometimes leak or fail. Deterioration is also an issue in the older properties. Whilst you can do your own visual inspections you are not an expert in building construction, and therefore it is sometimes necessary to call in an engineer to give qualified comment and guidance. The integrity of the building fabric will be of concern to the purchaser. In the case of older rendered buildings it is common for rainwater to penetrate cracks in the facade or walls, and cause the render or the concrete to fall away. This process is called ‘spalling’ and if noted will require engineer comment. It is regarded as a risk to the public and people on the grounds that are accessing the property.
18. Fire protection systems and compliance: Many buyers of a property will want to ensure that the property does comply with safety codes for building occupancy. Part of that will be formalised and operational systems such as building evacuation plans. It pays to ask the seller of a property as to their establishment of the evacuation plans and who is controlling the regular tenant drills and practices. This is highly important in a building with multiple occupants. In such circumstances the landlord is responsible for establishment of the plan and its integration to the tenant’s occupation. The lease for each tenant will also refer to their involvement with the fire safety systems and evacuation processes.
19. Geo Technical Surveys: This will be more relevant with land and development sites given that the property and building is still to be established or redeveloped. Has the property had such surveys undertaken? If so what is the status of the survey and the report? If a property is located in an area that appears unstable or if it is on sloping or rocky land, the report will be important to the future of the property. The geo technical report can help with the understanding of construction costs and strategies.
20. Historic site listing: If the building or the property is listed on a register of historic sites then you need to know what this means to the future of the property. Restrictions and limitations can be imposed on future property changes because of the heritage listing. This will add to the development costs and approval processes. If in doubt consult with the local planning approvals authority. If you have a property that is so affected or listed, then you will need an expert such as an architect to assist with the future considerations and costs for the property.
21. Hydraulic services: This is the plumbing and drainage systems for the property. You can ask for the ‘as built drawings’ of the property as part of your inspection process to understand how these systems integrate into the building and service the tenants. Usually the hydraulic systems will be centred on the core of the building. If a tenant wants to connect tea rooms and kitchens to the system then it is an engineering issue and needs the landlords approval to the process.
22. Indoor air quality: For some older buildings this can be a concern for occupancy. Properties located adjacent to major traffic corridors will also be high on the list when it comes to air quality concerns. Today tenants are very aware of the ‘sick building’ syndrome and its impact on the workforce both physically and legally. Reports can be obtained from the air conditioning contractor to assist with this problem, and if greater concerns are identified then engineers can be sourced.
23. Lead paint risk: Older buildings may contain surfaces that are coated in lead based paint. This has been proven to be a health concern in occupancy and will deter tenants. When in doubt see expert opinion from an engineer.
24. Legionella health risk and safety compliance: Building owners must comply with the local health regulations regards the health and function of the air conditioning system. Most particularly the issue of legionella is of more concern when there is a ‘cooling tower’ that functions in the air conditioning system. It is the ‘cooling tower’ that can become infected with the bacteria and then spread the infection through the building. Larger buildings will commonly contain ‘cooling towers’ as that is the accepted way to achieve economical function of the air conditioning system. The air conditioning consultant that maintains the air conditioning system for the building owner should have this health risk in check. If in doubt ask the questions. When a property owner self manages a building it is possible that they will either not have the knowledge to do so correctly, or they will cut corners as they do not want to spend money. This is a trigger to ask questions in the property sale.
25. Plant Life cycle: In older buildings the economical and functional life cycle of the plant in the building will become an issue. It can be a costly concern for the building to operate into the future. Buyers will need to assess the stability and function of the plant in the building. It pays to get an engineer’s report of the existing plant and machinery before you go to sale when transacting older buildings.
26. Maintenance contracts: Every property will have a selection of maintenance contracts and systems underway. Some of these will pass through settlement to the new property owner as the item under contract involves the amortisation of costly machinery and repairs. A good example here is the lift maintenance contract in the building. Cleaning contracts are also large expense contracts in major properties. As part of the property listing process it pays to understand the contracts that could fall into this category of ongoing cost to the buyer. If they do exist, then get a copy of the contract(s) and review it (them) for details and impact on the sale.
27. Mechanical services risks: The larger the property, the larger the risks when it comes to the mechanical services function and compliance to current operational codes. In the sale of larger properties it is likely that you will need an engineer’s report on the mechanical services before you move towards sale. The engineers know what compliance issues exist and how they should be assessed. Have the report available to provide to serious and qualified buyers if they ask any pertinent questions.
28. Nickel Sulphide Inclusion: If you are selling buildings with a lot of exterior glass it is possible that you will have heard of this problem or seen something about it elsewhere. Most particularly nickel sulphide (NS) is an impurity of the glass manufacturing process. NS when it exists in glass it will likely cause the glass to break within 5 years or so of manufacture and this is particularly the case if the glass is on the exterior of the building where it is under the stresses of daily heat and cooling. Given that architects like to use extensive glass on the outside of buildings, the problem of NS breakage is common. If the building is multi storey then you can have a risk event to members of the public that pass the building at street level. If you sell a building with a history of NS then you will need an expert to get involved in a detailed property report on the glass involved and installed in the building.
29. Noise emissions and risks: When working with any commercial property, the problem of noise emissions should be considered. Noise can emanate from the subject property or even neighbouring properties can also create the problem. This will obviously affect the ability to let the property and may create legal action or controversy whilst the property is occupied. Should the tenants in the property be the source of the noise then have the lease document create controls on the tenant in that regard. If you are selling a property with noisy tenants then you should review the lease documentation for similar protection to the purchaser or property owner. Industrial properties are most particularly the properties of concern in this category.
30. Occupational health and safety: The local building code will require compliance to occupational health and safety rules and regulations. It is appropriate to ask the building owner to identify any matters of noncompliance or irregularity. If in doubt seek the assistance of a building engineer or property inspector that is familiar with the health and safety codes in the building type that you are handling.
31. Machinery risk and unsafe workspaces: This is normally the concern of the tenants that occupy the premises given the way they install and use the machinery on the property as part of their business operations. There are however situations where the landlord may also have responsibility and this regard. This can be in areas which create risk or injury to people. It may be enclosed spaces where people can enter and be accidentally locked away then unable to escape. It can also be areas of danger such as radio frequency exposure from antennas on the roof of the building.
32. Ozone depleting substances: This will be in the form of gases that damage the environment. Older air conditioning plant can be affected by the problem. Building owners should have the plant maintained within current plant and machinery codes to control the threat. A report from an engineer will assist here.
33. Polychlorinated biphenyls: PCB’s are a group of manufactured organic chemicals that contain chlorinated chemicals (known as congeners). Concentrated PCBs are either oily liquids or solids and are colourless to light yellow in colour. They have no known smell or taste. There are no known natural sources of PCBs. PCB’s are residual contaminants from industrial processes and remain in the soil and on the property for many years unless correctly remediated. Given that industrial property was usually the source or storage of PCB’s, it still remains a problem today for real estate agents and brokers as they sell older properties. PCBs were originally used extensively in industry as they are a good insulating material. They have been used widely as coolants and lubricants in transformers, capacitors, and other electrical equipment. The manufacture of PCBs stopped generally around 1977 because of evidence that they build up in the environment and cause harmful health effects. Products containing PCBs are old fluorescent lighting fixtures, electrical appliances containing PCB capacitors, old microscope oil, and hydraulic fluids. During the time that PCBs were manufactured, there were often no effective controls on disposal.
34. Plant and equipment lists: When selling a commercial property, it is necessary to itemise the plant and the equipment across the property. This would normally be done in conjunction with the building engineer suitably skilled in the process. If your property is complex and large, it is a wise move to get this list creation process underway early.
35. Registration of plant and equipment: Some plant and equipment within the building is required to be registered with the local authorities. This is generally because that plant and equipment is regarded as a threat to the environment or to the public at large. The most common listings of plant and equipment are storage devices. The authorities like to know what is being stored on the property and where the storage devices are located. It can also be the case that the storage devices are suitably certified and registered the each year for compliance to matters of structural integrity. If any plant and machinery is certified in this regard, you should seek a copy of the latest certificates of registration.
36. Boundary survey: If the boundary of the property shows irregularity or is not clearly defined, then it is appropriate to get a surveyor to peg the boundary points and provide a plan of the site. Real estate agents and brokers should not give any guarantees as to the locations of the boundary of the property. If the buyer requires this information, then get a surveyor involved for the buyer’s satisfaction.
37. Standby generator: In larger buildings it is common for standby generators to support essential power circuits in the building. This does not mean that full power is supported to the tenants in the event of a power outage. If the building has a standby generator, it is appropriate to ask for clarity on what circuits of energy are supported by the generator. This information should be supplied to tenants in the building and any purchasers of the property. It is likely that the leases for tenants will make reference to the standby generator and the way it operates. If the building operates the standby generator to support 100% building demand by then it is usually tested annually in this regard. Certificates of compliance can be sourced. In large shopping centres it is common for standby generators to supply 100% power for a period of time (usually 30 minutes) in the event of a power outage. This allows the tenants to safely shut down their business and the occupants of the building to be correctly evacuated at the time of the major power outage.
38. Flooding risks and storm water: The local environment can present flooding risks. This can be identified from the location of local creeks and rivers, the coastline, and the levels and slope of land across the property. When in doubt, seek the assistance of property surveyors to clarify the risk of flooding locally and to the property. If the risk of flooding does exist and is known to all parties, it is necessary to apply restraints on occupancy so that the environment and the property are not damaged. These restraints will be reflected in the leases for the property. In such a situation, you will need to review the leases prior to any sale.
39. Structural risks: Every constructed property has the potential for structural risks. The older the property, the more likely this is to occur. The exterior facades of buildings are a common culprit here. The purchaser of a building will not want to assume or acquire structural risks, for this reason you will need to get engineers’ reports prior to moving to sale if issues are known or have been experienced on the property. It may also be necessary for the landlord to remediate the structural risk prior to marketing a property.
40. Synthetic mineral fibre: Most particularly this will be the installation or existence of Fibreglass and similar manmade fibres. Whilst this may not necessarily be a risk to the occupants of the building, it should be understood and documented by engineers to the building.
41. Trade waste: The tenants to the property may very well produce hazardous trade waste as part of their business. If this is the case, you will need to identify the controls and processes that the tenant uses to comply with property usage. Certification and regulation regards the hazardous trade waste will be an ongoing matter to which the tenant must comply. It is likely that the leases to the property will impose restrictions and obligations on the tenant in this regard. When in doubt, read the leases to check what is required of the tenant.
42. Traffic management: The property could be located on a major or minor road which has restrictions regards traffic access. This can apply to both the time of access and the points of access. If the tenant or the owner of the property requires extensive deliveries, this can be an issue. When in doubt, consult the local planning authority and highways commission for details of access rules and regulations. Also enquire as to the impact of any rights of way and easements which may apply to the subject property.
43. Underground storage tanks: Whilst we have mentioned this elsewhere, the existence of underground storage tanks is regarded as a hazard to the environment. These tanks are usually certified and regularly inspected. Awareness and disclosure of the tanks existence is imperative.
44. Vertical transport compliance: In multilevel buildings, vertical transport will be achieved through mechanical lifts or escalators. These mechanical services are regulated as to safety and operation. Annual certification and regular contractor maintenance will ensure compliance. Reference to the contractor involved will allow you to cover this issue and ensure compliance prior to sale.
45. Building warranties: When a building is newly constructed, or plant and machinery is newly installed, or tenant fitout is newly installed, the works involved will usually have an existing warranty for a period of time. If these warranties exist, they should transfer to the new owner of the building at the time of sale. Your job is to enquire as to the existence of any warranties as you move towards sale.
46. Zoning of the property and itcompliance: The property will be located in a zone detailed in the local development plans. Importantly, the property and its usage must comply with the zoning. If the property is a non-conforming or illegal usage to the existing zoning, then this should be detailed, advised, and acknowledged by all parties. As to how the contract is designed for such a sale, is up to the solicitors for both parties. In most circumstances of this type, special conditions are constructed which explain the intentions of the parties involved.