By J. Duncan Douglas, Partner Engineering and Science
In the complicated world of buying and leasing automotive dealerships, the owner and tenant each have a stake and a responsibility in maintaining the value of a property. While a commercial lease defines these roles, interpreting and applying lease terms can be a messy business, particularly when it comes to property condition.
J. Duncan Douglas
Owners and operators 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.
Enter the Lease Entrance/Exit Condition Assessment (LECA). A LECA is a commercial building inspection specifically designed to assess the condition of an automotive property at the commencement or termination of a lease. All major improvements and building systems are included in the assessment, which culminates in a report that provides an accurate picture of the condition of the asset and an estimate of the costs required to resolve any deficiencies.
The assessment 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. When performed by a quality inspector and used properly in the context of an automotive lease, a LECA allows the lessor and lessee to equitably manage the condition of a property, and provides a foundation for a smooth lease exit.
Customize it for your lease and your property
Unlike a traditional commercial building assessment, a LECA is targeted for use by a purchaser who intends to immediately lease back to a prospective tenant, or by an existing owner who has a pending lease exit or entrance.
It is also applicable to lessees who are entering or exiting leased properties. The LECA is tailored to the terms and conditions of the lease agreement, which typically provides a standard for returning the property in like condition, excepting normal wear and tear.
Your LECA can be customized to focus on as much detail as you find helpful and will include items that might otherwise be overlooked, including potentially expensive items such as replacement of the halogen light bulbs associated with parking lot lighting. The assessment can be performed by an experienced generalist, or specialists may be engaged for specific systems.
Because HVAC, roofing, and pavement repair/replacement can be the most expensive building systems to address, you may wish to include inspections by HVAC, pavement and roofing specialists in the scope of your LECA.
No surprises: expedite repairs/replacements of major building systems
A LECA will identify capital needs and prices of all failing or damaged building systems and safety issues, as well as long-term capital expenses based on the expected useful life of the building systems and components. This will allow you to plan, obtain funding for, and schedule restoration or maintenance efforts for minimum disruption of operations.
Furthermore, specialty contractors can provide pricing for the work necessary to restore the property to its pre-lease condition in the form of an executable fee quote on their letterhead. For property owners, this means less research when you’re ready to restore the property, saving time so your new tenant can be in place faster.
Smoother negotiations during the lease exit process
Many users of LECAs request facility assessments both at the initiation of the lease and at the termination of the lease. Conducting a “lease entry” condition assessment when a tenant takes occupancy provides strong documentation of existing, “baseline” conditions, particularly when supported by extensive photo documentation.
When archived and used in tandem with a Lease Exit Condition Assessment, the two assessments allow you to compare the condition of the property at the beginning and end of the lease term, removing questions of responsibility for property damage or repairs.
If you’ve included a system specialist in the scope of your LECA, the specialist’s assessment adds weight and legitimacy to the cost evaluation, as it is submitted as an executable document and attached as a supportive “Exhibit” to the consultant’s report.
With any major financial transaction, investing in proper due diligence can save money, time and headaches in the long run. When entering into a dealership lease, both lessors and lessees should recognize the LECA as a critical component in their due diligence process.
Partner Engineering and Science, Inc., is a market-leading provider of environmental, engineering and energy consulting and design services, supporting real estate owners, lenders and operators throughout the life cycle of their assets. J. Duncan Douglas is a National Client Manager based in Atlanta, Georgia. He can be reached at ddouglas@partneresi.com.
