Industrial & Commercial Property – The TCO Conundrum

Editorial by FM Mike Wade

No, this editorial doesn’t in any way relate to the first programme to be aired on the fledgling Channel 4 on 2nd November 1982, although just like the Countdown conundrum, it could prove crucial.

I’m actually referring to the overall cost of occupying a business property; including rent, lease premiums, interest on mortgages, or other financial instruments used to acquire the premises, maintenance, including the reinstatement and dilapidation requirements under a lease, commercial loan terms, mortgage and/or insurance, all of which are usually calculated prior to contract.

Calculating the Return on Investment, which leads to the decision to acquire or occupy in the first instance, can also often be disregarded when deciding what is and what is not essential spend on that property.

All of the above factors would be greatly considered when buying a house, so why is this not always the case with a commercial property?

Maintenance and TCO

Often, particularly when times are tight financially, property maintenance is put to one side as non-essential. Often only when the roof blows off or the building burns down, is the matter addressed.

Imagine the scenario where an insurance claim is made for the rebuilding of your factory after the roof has blown off during a period of high winds. Mr Insurance Assessor asks for the maintenance records, and is told that the last time it was looked at was when the building was bought 23 years ago. The phrase – “but it didn’t leak that much, so we assumed it was OK,” will not cut much ice when most policies require that regular inspections take place and maintenance work is to be undertaken. Please note, these records are expected to be handed in for inspection when requested.

Sticking with this scenario, how many Finance Directors have been met with a massive dilapidation bill at the end of a lease, purely because things that should have been addressed at regular intervals (redecoration, wiring, roof maintenance etc.) have not been carried out in accordance with the contract?

Whether you have purchased or leased, the premises from which you trade is as important an asset as the machinery which manufactures your product or as essential as the service you provide.

Would you scrimp on the maintenance of your Press Brake, lathe or guillotine, printing press or overlocker, delivery truck or JCB? To do so would affect your ability to service your customer and earn your crust, making the answer likely to be a resounding no.

As a minimum, any business should spend a little now on the following in order to reduce the risks of spending a lot in the future:

The roof: Annual inspections should be carried out by a competent, qualified professional, particularly after a period of extreme weather such as high winds or heavy rain. This should identify potential problems and allow them to be addressed before becoming expensive. Just because you cannot see the roof doesn’t mean it can be ignored. Remember that guttering and downpipes should be cleaned and checked at the same time.

Electrical installation: PAT (Portable Appliance Testing) is required by law and it would certainly be prudent to have an electrical inspection and certification process take place at the same time.

External Cleaning: Particularly on external cladding, or brick curtain walls, as atmospheric dirt can mask cracked or failing structures. The external storage should be kept tidy from a Health & Safety aspect to reduce the risk of trips and falls for staff and customers (pay attention to wooden rubbish or pallets, as often insurance policies will have small print regarding these in respect of the fire risks).

Grass cutting and landscaping is also important. All of these visible items enhance the first impressions of visitors, whether they are clients, customers or the general public. It has been proven that a well maintained building also reduces the occurrences of vandalism, such as graffiti or littering.

Your business premises is your window onto the world with whom you trade, how it looks and performs reflects upon you, and is probably one of the largest investments your business will make. Perhaps property maintenance should be something to ponder next time you are mowing the lawn, washing and waxing your car or paying the window cleaner at home.

Hodgson Sayers Ltd runs a regular maintenance programme for many of our clients to address all of these issues, with regular visits and reports to highlight any potential problems, allowing for the proper repairs to be made before it becomes a problem.