Reconciling costs and conditions

With the property market always changing and asset classes becoming increasingly varied, it is important when preparing planned maintenance instructions that building surveyors understand how their reports are to be used, so they can tailor them to clients' needs.

As specialists, we sometimes hear reservations from commercial and residential property managers and landlords about instructing a planned maintenance programme (PMP), such as 'Do we really need it?', 'Building surveyors put everything in, including the kitchen sink', 'They end up being put in a drawer and not followed,' and 'We don't want to instruct in case the report is disclosed to the prospective purchaser on disposal.'

The common issue in all of these comments is the tension between technical advice and the budgets and service charge levels demanded by commercial and residential occupiers. However, the absence of a PMP often leads to reactive expenditure, either on obvious aesthetic concerns or in response to events such as water ingress or breakdowns.

This can be an inefficient, costly and wasteful approach, which will not maintain the asset in a state that is ready for sale, and also runs the risk of significant price reductions on disposal.

So how should we approach PMPs to satisfy clients? The simple answer is to engage with the client by asking for a brief at the outset. But the difficulty remains that each professional taking up the brief on the site inspection has tunnel vision in respect of their specialism. Furthermore, any brief defined at the start will often change once the client has seen the overall expenditure in the PMP.

The PMP for most buildings should comprise schedules prepared individually by building surveyors and building services engineers and, where this is warranted, should also include those by vertical transportation engineers and cladding consultants. It is only once these have been collated into a master document that the big picture begins to emerge, though, and this can be seen in the context of expenditure benchmarks, historic expenditure, lease events, recoverability and the landlord's intentions.

Any attempt to manage the timing of expenditure before all this information has been assembled can create a skewed picture, as well as losing sight of the asset's true condition – a problem compounded if further iterations of the report are required after presentation to the client.
 

Some examples can illustrate how the context may vary from instruction to instruction, and how important it is for client engagement to reflect this.

High-end, trophy buildings compete for blue-chip tenants, and expectations of the level of service on offer will be high. For these buildings, a comprehensive PMP with specialist input is therefore essential.

However, a recent instruction on a high-end office building in the City of London shows that even trophy assets are not immune to competition on service charge. A large proportion of the building engineering services is approaching the end of its life over the next five years and, to help retain tenants contemplating a move elsewhere, the landlord is looking to make a loan to the service charge account. This will reduce the short-term impact on tenants, instead effectively meaning they repay the loan over the five-year time frame.

Historically, there has been a reluctance to consider the reserve fund for new-build developments – after all, the building is new and will benefit from various guarantees and warranties on completion. However, this attitude is changing, with a more forward-thinking approach now being favoured, regardless of what stage of its life cycle an asset has reached.

Savills was for instance recently instructed on a multi-phase project where the client wanted accurate cost forecasts for reserve fund collections. The report has informed management team budgets, and lessees can now be comfortable that there won't be spikes in their future expenditure.

Considerations in managing traditional long-leasehold residential blocks are very different to those in commercial property.Much of the time the management falls to management companies, so the plan is designed to spread the collection of reserve funds more equally between repairing and decorating cycles.

Unless there is adequate planning, lessees can find that expensive projects such as lift replacements are necessary but that they lack adequate reserves to cover them. Savills recently completed a reserve fund plan for a client in west London to help set required collection levels, reducing the risk that there will be inadequate funds for any works that arise.

Without fit-out costs as a consideration, competition to retain the tenants of private rented apartments is arguably even higher. This was a key factor in the PMP for a portfolio of build-to-rent apartments recently prepared by Savills, with the report requiring granular detail to ensure that the firm's in-house maintenance team could plan both remedial works and future refurbishment cycles.

Without a service charge from which to recover costs, the client is taking a hands-on approach to maintenance, and the PMP is central to understanding this and communicating it to those responsible for implementing the works.

Such PMPs can expand the scope of works, saving money by avoiding supersession of maintenance, increasing procurement efficiency or spending the minimum required for statutory compliance. They can also reduce operational risk to an acceptable level until major works commence.

In addition, PMPs are key documents in vendor's packs, demonstrating to prospective purchasers how far it might be possible to recover maintenance expenditure from tenants.

At the recent disposal of a portfolio of shopping centres, for instance, Savills focused on smoothing the transaction and reducing the risk of an unexpected price drop, and aligned the technical due diligence reports to ensure clarity and transparency. Taking this approach for all PMP instructions should result in reports that encapsulate the clients' maintenance strategy. But how can you increase the chances of these PMPs being followed?

As more and more assets are provided with building information models, we anticipate increasing demand for PMPs to be integrated into these, supporting communication with those implementing the plans.

Finally, it may be concluded that, if PMPs are to serve the purpose for which they are intended, client engagement and clarity of reporting are essential.

Chris Seton is PMP service lead, building and project consultancy at Savills  cseton@savills.com  

James Ingles is residential PMP service line lead at Savills  jingles@savills.com

Related competencies include: Housing maintenance, repair and improvements, Maintenance management