Property Checklist: An Introduction to Owning a Commercial Property

One of the most important things to remember about owning a commercial property is it is not like owning a residential property. If you are new to the industry, it is an easy mistake to make, but it’s one that will cost you. There are a whole different set of guidelines and rules when it comes to owning a commercial property. Having a thorough understanding of these guidelines will significantly benefit your return on investment. So, if you’ve recently come into owning a commercial property, here are a few things you should check off first:‍

Do you know the status of the BWOF?

Similar to your car’s WOF, a Building Warrant of Fitness (BWOF) is an annual certificate that confirms that an inspection, proper maintenance, and reporting for specific systems within the property have been properly carried out following the compliance schedule. A BWOF is necessary, regardless of whether or not the building is tenanted. If your recent purchase doesn’t have a current BWOF, you are liable for fees carrying up to a maximum of $20,000.

Do you have a Long Term Maintenance Plan (LTMP)?

‍If your property is part of a Body Corporate, New Zealand law requires that you establish an LTMP that covers a period of 10 years. This will cover maintenance requirements and costs, manage funds, provide a basis for levying principle units, and establish ongoing guidance to assist in annual maintenance decisions. To understand what’s going on in your Body Corporate, find out what the remaining period of cover is and when the next review is.

When was the latest maintenance inspection?

‍While New Zealand doesn’t mandate maintenance inspections, they are still an important part of owning and managing a commercial property. During these inspections, you will get a rundown of the condition of the property. By staying on top of maintaining your property, you will be increasing tenant retention and reducing tenant/landlord disputes.

Have you organised maintenance contracts?

‍Establishing a network of trusted and experienced maintenance workers will keep your property in its best condition. However, these contracts need to be negotiated beforehand. This can be a long and complex process, especially if you lack experience.

Is the property part of a Body Corporate? Do you know what part the Body Corporate handles?

‍If your property is part of a Body Corporate, you are part of a larger group of property owners acting together. This group will collectively manage and maintain the building, make day-to-day decisions, and will hold annual meetings to discuss and vote on upcoming building requirements. Make sure you integrate yourself with your property’s Body Corporate to understand what responsibilities are covered by the group and what you will be individually responsible for.

Do you have the right type of insurance and amount of cover for your property?

‍Being that this is likely the most significant investment you’ve ever made, having the right cover is essential for the protection of your investment. If you are part of a Body Corporate, you will not be individually responsible for insuring your property. Your insurance should cover building insurance, content insurance, natural disasters, and rent cover.

How do you list a vacant premise for lease?

‍Once you’ve checked off all of the above, you’re ready to move on to opening up the premises for lease. There are a number of platforms available online that you can use yourself, but you can also invest in signage and brochures. To attract your ideal tenant, make sure you are using high-quality images and including all relevant information about the property.

Do you know how to source a suitable tenant?

‍Getting the right tenant can mean the difference between a highly profitable investment and hemorrhaging money. Before you start seeking tenants, carefully consider the type of industry you’d be interested in leasing to. The pandemic has had profound impacts on certain industries, making it challenging for many businesses to operate under varying levels of restrictions. Do some thorough research behind different industries you could potentially tenant, taking into consideration how likely they will be able to withstand lockdowns.

Are you tenants paying outgoings on recharge, or is there an OPEX budget set up?

‍Most tenants in commercial properties pay outgoing expenses. However, this is something that can be negotiated in your lease. The type of lease will also determine who pays these operating expenses. For instance, a Gross lease would require a landlord to manage an OPEX budget. It's also important to keep in mind that there are limits to what costs a landlord can pass down on to the tenant, like structural repairs.

What version of lease are your tenants on?

‍There was a recent change in New Zealand’s legislation which added a clause into every commercial property lease concerning rent and outgoing abatement terms. Depending on when the lease was signed, some leases may already contain this clause. However, it is unlikely that more recent leases do. It’s important you know that whether or not you can physically see this clause in your lease with your tenant, it’s there.

There’s a reason why this is such a long list—owning a commercial property is complex. At Azure, we know this checklist like the back of our hands. Most importantly, we put people and property first, allowing us to deliver high returns and healthy properties for all of our clients.