iet facilities management - indiana university bloomingtont581pm/week_4/week4.pdf · + project...

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IET 51500Facilities Planning and Management

Before we begin:

Turn on the sound on your computer. There is audio to accompany this presentation.

Week 4

Real EstateReading: Text Chapter 6‐7

IET 51500Facilities Planning and Management

PULSE POINTS – Chapter 6

Real Estate Options and Regulations:

o Facility manager should manage real estate.

o Facility manager must coordinate user, legal and financial requirements for good purchase‐lease decisions.

o Facility manager should participate in site evaluation and acquisition.

o Facility manager should have plan to manage politics of site selection.

o Facility manager should learn as much as possible about sites.

o Facility manager should think about exit strategy when acquiring real estate.

Week 4 - 3

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Programming = Management Consulting

+ Strategic Planning

+ Organization Structure

+ Physical Space & Equipment

+ Relationships

+ Project Management

Facilities Planning = Programming + Space Planning + Facility Management

FACILITIES PLANNING

Week 4 - 4

Space Planning = Building Geometry

+ Measurement Standards

+ Interior Environment

+ Ergonomics

+ Office Layout

+ Building Codes

+ Accessibility

+ Sustainability

FACILITIES PLANNING

Facilities Planning = Programming + Space Planning + Facility Management

Week 4 - 5

Space and Design Programming (Planning) aspects include:

How much space or property is needed?

Who will occupy the space or property?

What type(s) of space or property are needed?

What space for growth will be required now and at what time in the future?

When is the space or property needed, and for how long will it be needed?

(continued on next slide).

FACILITIES PLANNING

Week 4 - 6

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Space and Design Programming (Planning) questions:

Where should the space or property be located?

Are there any other pertinent data that will enhance, clarify, or describe the FM’s customer’s and FM’s corporation’s specific requirements?

What quality of property or space is required?

What monies (capital or lease) are available?

FACILITIES PLANNING (continued)

Week 4 - 7

Workplace Programming

Week 4 - 8

FACILITIES PLANNING (continued)

INTRODUCTION

Leasing and letting are related aspects of property use.

Leasing occurs when an organization chooses to rent space rather than purchase and own.

When leasing, the organization is the tenant or lessee of property owned and controlled by another entity.

Letting occurs when an organization owns and controls property which is leased to another entity.

Property owners are referred to as the landlord or lessor.

Organization’s letting property have the objective of producing an income stream through the lease.

Week 4 - 9

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Typically the Facility Manager is responsible for:

Managing a lease;

Understanding business issues associated with the lease;

Understanding legal issues associated with the lease;

Ensuring landlord provides all services required by the lease when the tenant or lessee;

Ensuring all services required by the lease are provided when the landlord or lessor.

Week 4 - 10

INTRODUCTION (continued)

Organization’s financial, legal and business strategy significantly influences the acquisition of real estate and related space.

Financial considerations dictate whether new space will be:

Leased or owned

New or addition to existing space

Financial decisions are made by upper management regarding the use of capital and/or debt financing which can influence the amount of funds available for the new space.

(continued on next slide)

PURCHASE or LEASE?

Week 4 - 11

The decision whether to lease or buy obviously controls the approach to acquiring additional space for an organization.

A lease versus buy analysis may be a component of the decision process regarding new space.

If not included in the initial decision process regarding the addition of new space, it is typically conducted immediately after the decision is made to acquire an asset.

The analysis of lease or purchase includes economics analysis and an examination of various tradeoffs.

PURCHASE or LEASE? (continued)

Week 4 - 12

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Build by owner – organization buys real estate, develops the property and builds facilities for the organization’s unique requirements.

Joint venture – created between a developer and a corporate land owner. Approaches include:

Developer uses in‐house capabilities to deliver all of the development services.

Developer serves as the project organizer and/or manager bringing the necessary component together the project.


OPTIONS

Week 4 - 13

Ground lease property and build to suit – when property is not available at the desired location, organization may enter a long‐term lease of property and build their own facility. Disposition of the facility can revert to the lessor.

Purchase building built to specifications – organization uses a developer who has the desired property and expertise to construct the building to the organization’s specifications.

Lease space – lease space in an existing structure. Improvements required to adapt the structure (upfit) for the unique needs of the organization may be paid for by either the lessee or lessor.

Week 4 - 14

OPTIONS (continued)

Sale‐Leaseback – Corporation sells existing property to limited partnership. Participants:

o Seller / Lessee

o Purchaser / Lessor

o Lenders

Week 4 - 15

OPTIONS (continued)

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Several factors enter into the lease or purchase decision:

Ability to raise capital funds either through retained earnings or debt.

Ability to take advantage of tax credits.

Debt service opposed to lease cost’s effect on cash flow.

Cost of capital of the lessor and lessee.

Opportunity cost of committing capital funds to space.

Asset appreciation potential.

Availability of space in certain locations.

Asset appraisal for economic evaluation.

BUY or LEASE ANALYSIS

Week 4 - 16

Quantitative lease versus purchase analysis incorporates several factors. Some of the factors are known with reasonable certainty including:

Beginning rental rates

Beginning operating expenses

Purchase price

Capital outlay for purchase

Mortgage terms

Current tax rates – income, property and capital gains

Current depreciation schedules.


Week 4 - 17


Future state factors which must be estimated include:

Future yields on alternative investments (opportunity costs)

Future value of the dollar

Changes in tax laws

Operating expense increases

Tax increases

Rent increases based on inflation

Resale or property residual values

Inflation or recession

Week 4 - 18

BUY or LEASE ANALYSIS (continued)

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Lease versus purchase analysis compares all costs and factors associated with the two alternatives using time value of money:

Rent with escalation percentage.

Leased space improvement costs.

Purchase and/or mortgage costs.

Depreciation on property and improvement.

Operating expenses with escalation percentage.

Interest rates on borrowed capital.

Taxes with escalation.

Return on investment or opportunity cost.

Week 4 - 19


Week 4 - 20

Reference: The Facility Management Handbook. Kathy Roper and Richard Payant. 4th

Edition ©2014 AMACOM.

BUY or LEASE QUANTITATIVE ANALYSIS

Note the use of present value for future cash flows.

Preservation of capital.

Keep debt off financial statements.

Greater selection of space.

Variety of space configurations.

Flexibility.

Limits financial commitment and risk of long‐term capital debt.

Landlord provides services allowing managers to concentrate on running the business.

Consequences of tax laws related to ownership.

Week 4 - 21

LEASING ADVANTAGES

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Property appreciation is a potential long‐term benefit to the organization including uses the property value a collateral in future debt financing.

Right of occupancy – control of the property and facilities.

Predictability of occupancy cost.

Right of use of the property – organization controls type of activities performed on the property which may change over time.

Freedom to change or alter.

PURCHASE ADVANTAGES

Week 4 - 22

NEGOTIATING a LEASE

No "standard" lease exists. Commercial and office space leases are negotiated contracts.

It is wise to involve legal professionals in the process before committing to a lease contract.

The ability to negotiate a lease is dependent on who has the most leverage:

Are other companies vying for the space?

Has the space been vacant for a long time?

Are there available spaces just as suitable to your needs?

Are you willing to pay a high rent?


Week 4 - 23

Provisions in leases which can be problematic include:

The landlord's right to pass increased operating costs in the building on to the tenant without limitation.

The tenant's obligation to pay any increased taxes as a result of the landlord selling the building.

The landlord's right to terminate your lease early for his convenience.

(continued on next page)

Week 4 - 24

NEGOTIATING a LEASE (continued)

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Provisions in leases which can be problematic include:

A disclaimer about the building and the services provided to tenants.

Severe limitations or prohibitions on subletting your space.

Your obligations after the tenancy terminates:

Do you have to replace everything to its original condition?

Do you have to pull out all cabling?

Week 4 - 25

NEGOTIATING a LEASE (continued)

CHECKLIST for LEASES

1. Space: a) What is the rentable square footage? b) What is the usable square footage? c) Is rent based on usable or rentable square footage? d) Verify square footage number provided by the landlord.

2. Permitted Uses of the Premises: a) What uses of the premises are permitted? b) Is the permitted use clause broad enough for possible changes in the

business? c) Is the permitted use clause broad enough for potential assignments

or subleasesd) Can the use clause be drafted to include “any lawful purposes”e) Can uses be changed with landlord’s consent, which consent can’t be

unreasonably withheld or delayed?

Week 4 - 26Reference: http://www.allbusiness.com/operations/facilities‐office‐leasing/212‐1.html

3. Primary lease term: a) What is the commencement date of the lease?b) What happens if the space is not ready on the commencement date?

Is there rent abatement, monetary damages, right to cancel the lease, or other remedies specified?

c) What is the termination date? d) Does the landlord have the right to terminate early without cause?e) Does the tenant have the right to terminate early by payment of a fee?

4. Rentals: a) What is the base rent for the primary term?b) Are there escalation clausesc) Are there cost of living increasesd) Is there a cap on any rent increasese) Is there a reasonable grace period and written notice before a late

charge is imposed?

Week 4 - 27

CHECKLIST for LEASES (continued)

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5. Common area maintenance, HVAC, and Operating costs: a) What does the tenant have to contribute for common area

maintenance, ventilating, heating, air conditioning, and other building operation costs?

b) Is there a capc) Can the amount be increased each yeard) Real estate taxes and other impositions:

i. Does the tenant have to pay a portion of the real estate taxes? ii. What increases over base year are allowediii. Is there a cap on tax increasesiv. Does the tenant have to pay increased taxes that may occur on

sale of the building?


Week 4 - 28


5. Common area maintenance, HVAC, and Operating costs (continued): e) Are there any special provisions or exceptions on the payment of

these expensesf) When is payment dueg) What detailed reports does the landlord have to provide the tenant

showing the actual expenses? h) What audit rights does the tenant have to review the landlord’s

books and recordsi) Are there provisions made for weekend and holiday service? What

are the chargesj) Does the tenant have a remedy for service interruption?

Week 4 - 29


6. Tenant Improvements: a) What tenant improvements will be necessary? b) What is the costc) How much time will it take to complete the tenant improvementsd) Will the landlord contribute to the cost for the tenant improvementse) What approvals will be necessary?f) What permits will be necessary?g) Does the landlord or the tenant own any improvements?

7. Repairs and replacements: a) What responsibility does the tenant have for repairs or replacements? b) What responsibility does the landlord have for repairs or replacements? c) At the end of the tenancy, is tenant’s obligation to return the premises in

same condition at the beginning of tenancy, excluding (1) ordinary wear and tear, (2) damage by fire and other unavoidable casualty, and (3) alterations previously approved by landlord?

Week 4 - 30


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8. Utilities: a) Direct supply or individually metered? b) Method of computing payment?

9. Assignment and subletting: a) Is the landlord’s written approval requiredb) What standard is there for approval? absolute discretion? reasonable

approval? c) Does the landlord have the right to cancel the lease if notified of a

proposed assignment of subleased) If the assignment or sublet is at a higher price than the base rent,

who keeps the excess? or what split is theree) Can the lease be assigned to affiliates of the tenant without landlord

approvalf) Can the landlord terminate the lease if the stock ownership of the

tenant changes?

Week 4 - 31


10. Subordination and attornment: a) All present or future mortgagesb) Execution of estoppel certificates requiredc) Tenant agrees to attorn to landlord’s successor in interest?

11. Destruction: a) Is there a right of cancellation for the tenant in the event of

destruction? b) What obligation does the landlord have to rebuildc) Does the tenant share in any proceeds from insurance?

12. Indemnity and Disclaimer: a) Indemnity mutual or tenant onlyb) Waiver of claims mutual or tenant only? c) Waiver of subrogation? d) Landlord liability limited to interest in property?

Week 4 - 32


13. Default: a) Does the tenant have a cure period after notice of a breach? b) What remedies are available for breach?

14. Landlord’s warranties: a) Quiet enjoyment of premises by the tenant?

Reference:http://www.allbusiness.com/operations/facilities‐office‐leasing/212‐1.html

Week 4 - 33


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Siting is the process of selecting a site for a new facility. Factors used in siting include:

Access to markets

Access to supplies and resources including labor

Community and government aspects including taxes

Environmental considerations

Interaction with other corporate facilities

Individual site characteristics

Access to transportation systems

Utilities and services availability

SITING

Week 4 - 34

SITE SELECTION ANALYSIS

Week 4 - 35



SITE SELECTION ANALYSIS (continued)

Week 4 - 36



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Week 4 - 37



Both lease and purchase options may include the need for site selection analysis:

Figure 8‐2 is a site evaluation analysis using a weight and rating approach:

Each factor is weighted in terms of importance.

Each site alternative is rated for each factor.

Score = weight x rating. Highest total score is best.

Figure 8‐3 is a analysis tool comparing 24‐month lease and improvement costs proposals.

Analysis uses costs so lowest cost is preferable.


Week 4 - 38

Reference: The Facility Manager’s Guide to Finance and Budgeting. David Cotts and Edmond P. Rondeau. ©2004. AMACOM.

Figure continued on next slide.Week 4 - 39

The Facility Manager’s Guide to Finance and Budgeting. David Cotts and Edmond P. Rondeau. ©2004. AMACOM.


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Week 4 - 40



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Additional site selection analysis tools include:

Figure 8‐4 is a lease proposal analysis tool using annual lease cost along with parking and operating expenses.

Information on purchase option included for reference.

Figure 8‐9 is a lease analysis tool which incorporates effective rent levels.

Effective rent is based on rentable and usable square footage.

Week 4 - 42


Reference: The Facility Manager’s Guide to Finance and Budgeting. David Cotts and Edmond P. Rondeau. ©2004. AMACOM.

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Figure continued on next slide.Week 4 - 43



Week 4 - 44



Figure continued on next slide.

Week 4 - 45



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Week 4 - 46



Week 4 - 47




PULSE POINTS – Chapter 7

Lease Administration and Property Management:

o Multiple facilities require careful lease management.

o Facility manager must be familiar with property management.

o Facility manager should be part of corporate team when real estate development is organization’s core business.

o Properties should be disposed of when on longer of value.

o Development projects specifically for investment or resale inhibits the owner’s flexibility to respond to needs of own workforce.

o Public sector facility managers must be politically astute when disposing of public facilities.

Week 4 - 48

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LEASE TERMINOLOGY / DEFINITIONS

A lease (rental agreement) is a contract conferring a right on one person (tenant or lessee) to possess property belonging to another person (landlord or lessor) to the exclusion of the owner landlord.

A contract is a binding legal agreement that is enforceable in a court of law or by binding arbitration. Breach of contract is recognized by the law and remedies can be provided. Contract law can be classified as part of a general law of obligations.

The formal requirements for a lease are determined by the law and regulations of the legal jurisdiction in which property is located.

Week 4 - 49

The relationship between the tenant and the landlord is called tenancy and the right to possession by the tenant is sometimes called a leasehold interest.

A lease can be for a fixed period of time called the term of the lease. Depending on provisions of the lease, the term may be terminated sooner than the specified time period.

A lease differs from a license which may entitle a person (licensee) to occupy property, but which is subject to termination at the will of the owner of the property (licensor).

Week 4 - 50


Certificate of Occupancy is a document issued by a local government agency or building department certifying a building's compliance with applicable building codes and other laws, and indicating it to be in a condition suitable for occupancy.

The procedure and requirements for the certificate vary widely from jurisdiction to jurisdiction and on the type of structure.

In the United States, obtaining a certificate is generally required whenever occupancy of a commercial or industrial building changes.

Week 4 - 51


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Options associated with leasing include:

Lease with no capital funds available from the organization for upfit – organization doesn’t need to invest in the space but will result in higher lease costs.

Upfit is the "fitting" of a newly acquired space to accommodate the tenant's specific needs. Can include based on building codes, safety measures, or just for the sake of aesthetics.

Lease to obtain the lowest possible rent by providing upfit funds – organization has funds available and has the strategy is to minimize rent expenses.


LEASE CONSIDERATIONS

Week 4 - 52


Least for a short term (less than 2 years) for specific business reasons – space is needed only for a short period. May result in higher rent.

Least for a long term (3 to 5 years) – space is needed for specific purposes for an extended time. Lower rent costs may result.

Lease with a purchase option – organization does not have sufficient initial capital to purchase property but anticipates future ability to purchase. Terms of lease include specified price at a future date.

(continued on next slide)Week 4 - 53

LEASE CONSIDERATIONS (continued)

Leasehold (Leasehold Estate) is a form of property tenure where the right to occupy land or a building for a given length of time is bought:

Leaseholds can be bought and sold on the open market and differs from a tenancy where a property is let on a periodic basis such as weekly or monthly.

Until the end of the lease period (99 years is common) the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner.

Terms of the agreement are contained in a lease, which has elements of contract and property law intertwined.

Week 4 - 54

LEASE CONSIDERATIONS (CONTINUED)

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A land lease or ground lease is a lease in which the tenant rents and uses the land, but owns the temporary or permanent buildings and other objects placed upon it.

A leveraged lease is a lease in which the lessor puts up some of the money required to purchase an asset (property or equipment) and borrows the rest from a lender. The lender is given a senior secured interest on the asset and assignment of the lease and lease payments. The lessee makes payments to the lessor, who makes payments to the lender.

Week 4 - 55



Ground lease – long term lease (10 to 25 years) of ground on which organization will make and own capital improvements.

Build to suit – long term lease (5 to 15 years) of space to which property owner makes capital improvements that are amortized in rent payments. May include purchase option.

Week 4 - 56

LEASE CONSIDERATIONS (continued)

An operating lease has a term that is short compared to the useful life of the asset or piece of equipment being leased. An operating lease is commonly used to acquire equipment on a relatively short‐term basis.

For example, an aircraft which has an economic life of 25 years may be leased to an airline for 5 years on an operating lease.

Week 4 - 57


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TENACY TYPES

Fixed‐term tenancy or tenancy for years lasts for a fixed period of time.

Even though the term ‘tenancy for years’ implies a year or more, such a tenancy can last for any period of time or upon fulfillment of a specified condition:

Tenancy for one week would be referred to as a tenancy for years.

Duration could be conditioned upon the happening of some event, (e.g. "until the crops harvested”).

Fixed term tenancy comes to an end automatically when the fixed term runs out or when the event occurs.

Week 4 - 58

Periodic tenancy is a lease term that exists for some period of time determined by the term of the payment of rent.

Periodic tenancy is also known as a tenancy from year to year, month to month, or week to week.

The landlord may terminate a periodic tenancy at any time by giving the tenant notice as required by statute. Typically:

The landlord must give six months' notice to terminate a tenancy from year to year.

Tenants of lesser durations must receive notice equal to the period of the tenancy.

Week 4 - 59

TENACY TYPES (continued)

Tenancy at will is a tenancy my be terminated by either the landlord or tenant at any time by giving reasonable notice. Tenancy at will usually occurs in the absence of a lease or where tenancy is not for rent.

Tenancy at will is very rare, partly because it can only come about if the parties expressly agree that the tenancy is at will and not for rent or other consideration.

Tenancy at will is common where a family member is allowed to live in the without any formal arrangements.


Week 4 - 60


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Tenancy at willmay be used for a temporary period where a tenant wishes to take possession of a property urgently, but there is insufficient time in which to negotiate and complete a new lease.

In this case, the tenancy at will is terminated as soon as the new lease is completed and is usually agreed on the basis that if the new lease fails to complete within a reasonable time period, then the tenant must vacate the premises.


Week 4 - 61


Tenancy at will is broken if the:

Tenant commits waste against the property;

Tenant attempts to assign his tenancy;

Landlord transfers his interest in the property;

Landlord leases the property to another person;

Tenant or landlord dies.

Tenancy at will also comes to an end when either the landlord or tenant act inconsistently with a tenancy.

Week 4 - 62


Tenancy at sufferance (a.k.a. holdover tenancy) exists when a tenant remains in possession of a property after the expiration of a lease, and until the landlord acts to eject the tenant from the property.

Although the tenant is technically a trespasser at this point, authorities recognize the condition in order to hold the tenant liable for rent.

The landlord may evict such a tenant at any time, and without notice.


Week 4 - 63


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The landlord may also impose a new lease on the holdover tenant:

For a commercial tenancy of more than a year, the new tenancy is year to year; otherwise it is the same period as the period before the original lease expired.

In either case, the landlord can raise the rent, so long as the landlord has told the tenant of the higher rent before the expiration of the original lease.

Week 4 - 64


TERM of a LEASE

The term of the lease may be fixed, periodic or of indefinite duration:

If the term is for a specified period of time, the term ends automatically when the period expires, and no notice needs to be given, in the absence of legal requirements.

The term's duration may be conditional, in which case it lasts until a specified event occurs, such as the death of a specified individual.

A periodic tenancy is one which is renewed automatically, usually on a monthly or weekly basis.


Week 4 - 65

The term of the lease:

A tenancy at will lasts only as long as the parties wish it to, and may be terminated by either party without penalty.

It is common for a lease to be extended on a "holding over" basis, which normally converts the tenancy to a periodic tenancy on a month by month basis.

It is also possible for a tenant, either expressly or impliedly, to give up the tenancy to the landlord. This process is known as a surrender of the lease.

Week 4 - 66

TERM of a LEASE (continued)

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LEASE CONTINUATION

In some jurisdictions, the tenant has a legal right to remain in occupation of the premises after the end of a lease unless the landlord complies with a formal process to dispossess the tenant of the property.

For example, in the United Kingdom, a business tenant has a right to continue occupying the property after the end of their lease under the provisions of the Landlord and Tenant Act. At the end of their lease they need do nothing but continue payment of rent at the previous level and uphold all other relevant covenants such as to keep the building in good repair.

Week 4 - 67

COMMON LEASE ELEMENTS

Common elements of a lease include:

Names of the parties of the agreement.

The starting date and duration (term) of the agreement.

Identifies the specific object being leased (e.g. street address).

Provides conditions for renewal or non‐renewal.

Has a specific consideration (a lump sum, or periodic payments) for granting the use of this object.


Week 4 - 68

Common elements of a lease include:

Provisions for a security deposit and terms for its return.

May have a specific list of conditions which are therein described as Default Conditions and specific Remedies.

May have other specific conditions placed upon the parties such as:

need to provide insurance for loss

restrictive use

which party is responsible for maintenance

Week 4 - 69

COMMON LEASE ELEMENTS (continued)

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Lease Escalation Clauses:

Fixed rent over long term leases is relatively rare.

Typically landlords include rent escalation clauses in the lease which are based on an economic index such as the Consumer Price Index (CPI).

Escalation clauses can be negotiated to include provisions such as:

Defer time until escalation clause becomes effective.

Set cap on the amount of each year's increase.

Week 4 - 70


A use clause is put in by the landlord and signifies how the space can and cannot be used. This helps the landlord protect their property.

An exclusive clause protects the lessee by preventing or limiting a competing businesses from opening in the same property.

This clause is particularly prevalent in retail leases. (e.g. a larger mall will only allow two of a certain type of store and locate them at opposite ends of the mall or on different floors.

Week 4 - 71


The premises stated in the lease need to be defined clearly. For example

If you are leasing a building, does it include the parking facility?

If you are leasing an office in a large building, does this include the kitchen area? restrooms?

What is in your lease and what is defined as common area?

Week 4 - 72


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Security is an important lease clause. Security clauses may cover issues such as:

Who is responsible for securing the premises?

What does "security" constitute?

Is a security system installed? If not, will the landlord install one?

Does the landlord have access to your leased area?

Week 4 - 73


RIGHTS

Under normal circumstances, owners of property are at liberty to do what they want with their property, including dealing with it or handing over possession of the property to a tenant for a limited period of time.

If an owner has surrendered possession to another (i.e. the tenant) then any interference with the quiet enjoyment of the property by the tenant in lawful possession is itself unlawful.

Similar principles apply to sub‐leasing. The right to sub‐lease can be expressly prohibited by the main lease.

Week 4 - 74

The concept of quiet enjoyment can be violated by:

Total eviction of the tenant through direct physical invasion by landlord.

Partial eviction when the landlord keeps the tenant off part of the leased property (even locking a single room). Tenant can stay on the remaining property without paying any rent.

Partial eviction by someone other than landlord. For example a landlord claims to lease an area of 1000 ft2 but 400 ft2 of the area belongs to another person. In this case the tenant only has to pay 60% of the rent.

Week 4 - 75

RIGHTS (continued)

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TENANT DUTIES / LIABILITIES Under the common law, the tenant has two duties to the

landlord:

Pay the rent when it is due

Avoid damage or destruction of the property.

A tenant is liable to third party invitees for negligent failure to correct a dangerous condition on the premise – even if the landlord was contractually liable.

An invitee is a person who is invited to land by the possessor of the land as a member of the public or one who is invited to the land for the purpose of business dealings with the possessor of the land.

Week 4 - 76

SUBLEASE

Sublease or sublet is the term used when an arrangement in which the lessee/tenant assigns the lease to a third party.

The original lessee is now the sublessor, and the new lessee is the sublessee or subtenant. This means renting and renting out the same property at the same time.

Example: the owner of an office building may lease the whole building to a management company. This company may then sublease parts of the building to other people. The management company is said to sublet the property to the individual tenants by means of a sublease.


Week 4 - 77

SUBLEASE (continued)

The sublessor remains liable to the original lessor for any damage to the property and for payment of rent.

The amount of rent paid by the sublessee can vary and is negotiated between the sublessor and sublessee. The sublessor may accept lower rent from the sublessee than required by the original lease to recoup some of the cost of excess or unused space.

The original lease contract typically will specifically address whether the original lessee has the right to sublet all or part of the space.

Week 4 - 78

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PROPERTY MANAGEMENT

Property management goal is to maximize profit of leased facilities.

Functions of on‐site property managers:

Rules and regulations enforced

Contractual services performed at high standard

Small problems resolved before they become a crisis

Less physical abuse of facility

Tenants have presence for complaints and suggestions

Week 4 - 79

PROPERTY MANAGEMENT

Week 4 - 80

Reference: The Facility Management Handbook. Kathy Roper and Richard Payant. 4th Edition ©2014 AMACOM.

LANDLORD DUTIES

First is to put the tenant in possession of the land/property at the outset of the lease.

Second is to provide the premises in a habitable condition ‐there is an implied warranty of habitability.

If the landlord violates either of these duties the tenant can terminate the lease and move out, or stay on the premises, while continuing to pay rent, and sue the landlord for damages (or withhold rent and use breach of implied warranty of habitability as a defense when the landlord attempts to collect rent).

Week 4 - 81

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LANDLORD LIABILITIES

Under the common law, the landlord has no duties to the tenant except in the following situations such as:

Failure to disclose defects in the property that the landlord knows about or has reason to know. Note that the landlord has no duty to repair, just to disclose.

Common areas under landlord's control (e.g. hallways in an office building), if the landlord failed to use reasonable care in maintaining them.

Injury resulting from landlord's negligent repairs – even if the landlord used all due care.

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PROPERTY DEVELOPMENT

Property development usually involves transition and improvement of property.

Property development team typically includes:

Facility manager

Land‐use consultant

Concept designer

Legal counsel with local land‐use expertise

Client representative (if available)

Week 4 - 83

PROPERTY DEVELOPMENT (continued)

Week 4 - 84

Reference: The Facility Management Handbook. Kathy Roper and Richard Payant. 4th Edition ©2014 AMACOM.

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PROPERTY DISPOSAL

Property disposal methods include:

Sale and partial lease‐back

Subdivision

Raze and redevelop

Tax‐free exchange

Short‐term financing

Short‐term lease with purchase option

Donations

Week 4 - 85

Week 4 Deliverable: Problem Set #3

iet facilities management - indiana university bloomingtont581pm/week_4/week4.pdf · + project...

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