Retail Leases: What Condition Is Your Condition In?

When retail tenants are responsible for maintaining the property they lease, property owners and managers can find themselves in the uncomfortable position of holding tenants accountable for maintenance or risking devaluation of their asset due to damage or neglect.

In a perfect world, each party understands their respective maintenance responsibilities and upholds them with transparency and minimal conflict. In the real world of retail real estate, however, interpreting and applying lease terms can be a messy business, particularly when it comes to property condition and maintenance. Owners and occupiers alike can benefit from a tool that helps them understand the condition of a property and the cost of maintaining it within the framework of their lease agreement.

A Property Condition Assessment (PCA) is a commercial building inspection specifically designed to document the condition of a property, identify deficiencies, and provide data regarding the cost of immediate repairs required, as well as long-term repair and capital expenses. While typically performed upon the sale/purchase of a property, a PCA is a great tool to assess and document the condition of a retail space, too—particularly for anchor tenants or net-leased spaces—and identify needed repair at the commencement or termination of a lease. All major improvements and building systems are included in the assessment, which may be performed to establish a baseline when a new tenant takes possession of the property, when a tenant vacates, or, ideally, at both entrance and exit of a lease.

In this GlobeSt. article, Leo Bertolino discusses how PCAs can be customized for your lease and your property, how they can identify capital needs of all failing or damaged building systems, and also ensure smoother negotiations during the lease exit process.