Lease and Facilities Management Standards and Guidelines GOVERNMENT Property Management CENTRE of EXPERTISE
Government Property Management Centre of Expertise Charles Fergusson Building Level 8 Bowen Street P O Box 1556 Wellington 6140 New Zealand February 2015 ISBN: 978-0-478-33597-2 (Online) Crown copyright 2014 This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms. To view a copy of this licence, visit http://creativecommons.org/licenses/by/3.0/nz. Please note that no departmental or governmental emblem, logo or Coat of Arms may be used in any way that infringes any provision of the Flags, Emblems, and Names Protection Act 1981. Attribution to the Crown should be in written form and not by reproduction of any such emblem, logo or Coat of Arms. Cover image concept of 15 Stout St Wellington was provided courtesy of Warren and Mahoney architects
Contents 3 Background 4 Purpose of the 5 A high-level framework for lease and facilities management in government workplaces 6 Purpose of the lease and facilities management 7 Applying the 8 Lease management 9 Lease management guidance 13 Facilities management 18 Facilities management guidance 20 Glossary 23 27 Appendix 1: Request for approval process for the acquisition, disposal and renewal of leases 28 Appendix 2: Facilities maintenance obligations 31
Vision for the Crown property portfolio A government property portfolio that is responsive, affordable, sustainable and safe; leveraging property as a tool to support organisational culture and assist in the delivery of services.
standards and guidelines 3
Background As part of the State Services Commission s Better Public Services programme, Cabinet approved the mandate for the functional lead for property and for the Government Property Management Centre of Expertise (PMCoE), as agent of the functional leader property, to undertake and lead a number of national property-related initiatives, with the aim of delivering better public services within tight financial constraints. The mandate for the Functional Leader of Property includes all office accommodation and public interface accommodation, but excludes operational areas. Under the functional lead for property, mandated agencies are required to: Develop biennial property strategies and plans; Obtain approval for all acquisitions and disposals of leased and owned office accommodation and public interface accommodation; Comply with standards, tools and processes; Adopt cost-effective options to manage energy consumption and emissions; Reduce total-life occupancy costs, including working towards an office space density goal of between 12m 2 and 16m 2 per FTE; Behave and negotiate with due regard to impacts on other Crown agencies operating in the same market; Take a whole-of-government perspective when considering lease options, including as a priority, considering surplus space available from other government agencies and co-location opportunities; and Only enter rental contracts that limit performance and price risk. The PMCoE has published the Government National Property Strategy and Principles (GNPS). The GNPS provides a high-level framework for a co-ordinated planning approach across government, providing the foundation for a nationwide portfolio of office and public interface accommodation. The GNPS contains themes, objectives and principles (Workplace, Asset Management, Lease and Facilities Management, and Portfolio Management), all conveying the intentions and expectations of the Government. The PMCoE, among other things, is tasked with developing and publishing to help agencies responsible for managing government office and public interface accommodation to do so in a way that is consistent with the themes and strategic objectives of the GNPS; and enables the GNPS principles. Three standards and guideline documents will be published: Workplace; Asset Management of Lessee Assets; and Lease and Facilities Management. 4
Purpose of the Standards and Guidelines The Lease and Facilities Management Standards and Guidelines are designed to help those in government agencies tasked with acquiring and disposing of leases and managing leases and facilities. The aim of these is to assist agency staff to operate in a proactive way when managing leases and facilities. This will maximise cost efficiencies and maintain a productive environment for staff in a way that is consistent with the vision, strategic objectives and relevant principles of the GNPS. The standards are compulsory and agencies are required to apply them at the soonest practicable opportunity. The guidelines are not compulsory. They have been created to assist agencies proactively manage their leases and facilities. Although the vast majority of the office accommodation and public interface areas occupied by agencies are leased rather than owned, the focus of these is the management of facilities in both the freehold and leasehold environment. Certain office and public interface space is excluded from the scope of these. The excluded space is either integrated with agencies operational areas, for example, office and public interface areas within courts of law; or is on designated land, for example, New Zealand Defence Force land, and is not able to be used by other agencies. Agencies can choose to apply the to excluded spaces where a guide towards best practice is required. References: A Practical Guide to Facilities Management, Ian C. Barker, 2013, Scotland, United Kingdom Facilities Management and the Business of Managing Assets, Danny Then Shiem-Shin & Tan Teng Hee, 2013, United Kingdom Facility Management Guidelines to Managing Risk, Facility Management Association of Australia Limited, February 2004 Facilities versus Property Management, International Facility Management Association Government National Property Strategy and Principles, Property Management Centre of Expertise, August 2013 Managing Facilities to Enhance Organisational Performance RICS guidance note (1st edition) May 2013 Property Management Guidelines for Office Space Property Management Centre of Expertise, August 2012 Strategic Facility Planning A White Paper, International Facility Management Association, 2009 Total Facilities Management, third edition, Brian Atkin and Adrian Brooks, 2009, United Kingdom Workplace Standards and Guidelines for office space, Property Management Centre of Expertise, August 2014 5
A high-level framework for lease and facilities management in government workplaces Strategic objectives The overall objective of the GNPS is to provide a robust foundation for the PMCoE and agencies to deliver value for money effectively from the Crown property portfolio. The GNPS has five specific objectives: Drive efficiencies through property: minimise the whole-of-life cost of the property portfolio; Enhance the capability to adapt to change: improve government s capability to adapt to change and support new initiatives rapidly and efficiently; Enable access to people, information and amenities: allow staff to access the appropriate people, information and amenities required to be productive; Achieve consistency of workplace quality: develop a consistent level of quality, investment and design supporting a common workplace infrastructure; and Safe and secure environments: ensure the health, safety and security of agency employees. Lease and facilities management principles To achieve the vision and strategic objectives of the GNPS the following four principles have been developed to guide the lease and facilities management of government office accommodation: Integrate property and business planning Property needs should be identified when the strategic objectives of an organisation are being set. Cost efficiency The proactive and attentive management of lease obligations will minimise unnecessary costs, fees and penalties. Common furniture and layouts will eliminate the costs and disruptions associated with churn within agencies. Centralise information & risk management Utilise the Government Property Portal (GPP) to manage, monitor and report on lease and property obligations. Service Service-level contracts (such as those for cleaning and utilities) are to be monitored and managed to ensure maximum performance and value. The purpose of building and facilities will be monitored and managed according to the building performance specifications and the operating procedures and building regulations within leases. Agencies are to maintain and keep working environments operating in a manner which provides a safe, secure environment for staff which also supports staff productivity. The lease and facilities management principles set expectations of integration, management and service. The focus is on the acquisition and disposal of leases and the proactive management of leases and facilities to maximise cost efficiency and maintain a productive environment for staff. 6
Purpose of the lease and facilities management The acquisition, management and disposal of leases involves the process of procuring new leases, proactively managing leases through to the end of their term and adhering to the correct process when disposing of them. Facilities management involves the maintenance and care of large commercial buildings and is commonly defined as being an integrated approach to operating, maintaining, improving and adapting the premises and infrastructure of an organisation in order to create an environment that strongly supports the primary objectives of that organisation. Source: Total Facilities Management, third edition, Brian Atkin and Adrian Brooks, 2009, United Kingdom Lease management The purpose of the lease management is to provide best practice for negotiating new leases, proactively managing leases once executed and disposing of leases. The long term nature and financial commitment of commercial leases requires the application of specialist skills and knowledge. It is essential that agencies use internal agency staff with the relevant skills, knowledge, and experience or engage external advisors with the relevant skills, knowledge and experience, when negotiating new leases, managing existing lease agreements and disposing of leases. Facilities management The purpose of the facilities management is to: Assist facilities managers to operate in a proactive way; Coordinate and monitor the operation and maintenance of property assets in a cost effective manner and proactively manage assets through asset management planning and forecasting; Operate and support workplaces to be safe, efficient and productive for staff; Ensure that the operation of facilities are in accordance with contractual obligations, legislation and regulations; and Ensure that the operation of facilities are in accordance with contractual obligations outlined within the relevant lease and any contractual obligations with third party providers. 7
The standards outline the key requirements agencies must meet and act as a prompt for agencies to examine their current approach to the acquisition, management and disposal of leases and the management of facilities. Agencies should consider the overall intent of the guidelines when they come to applying them. An agency s size and structure and the complexity of its property portfolio will influence how each agency applies the guidelines. 8
Lease management Standards Lease Templates Agencies shall use the appropriate government standard lease template as the basis for all new leases. Other lease templates shall only be used in exceptional circumstances, where it is not operationally and/or commercially practical to use the appropriate government standard lease template. Refer to the table Government standard legal templates in the Lease management guidance section for further information on the types of templates available. Where agencies consider it is not operationally and/or commercially practical to use a government standard lease template, agencies shall provide the PMCoE with reasons why it would not be operationally and/ or commercially practical to do so and obtain the PMCoE s prior written approval. Approvals Prior to acquiring new leases, agencies shall ensure the appropriate approvals are obtained as follows: All lease proposals with a whole-of-life-cost (WOLC) of up to $15 million, if funded from baselines and balance sheets All lease proposals with a WOLC between $15 million and $25 million, if funded from baselines and balance sheets All lease proposals with a WOLC over $25 million (even if funded from baselines and balance sheets) Chief Executive approval required Minister approval required Cabinet approval required *Note that the financial thresholds contained in the table above are GST exclusive. For further information on the financial thresholds refer to Cabinet Circular (10) 2. 9
Acquisitions, Disposals and Renewals When acquiring new leases, agencies shall behave and negotiate with due regard to the impacts on other agencies operating in the same market. Agencies shall obtain approval from the PMCoE prior to acquiring a new lease, disposing of an existing lease or exercising a lease renewal, if approval has not already been obtained as part of the biennial approval required for agency property plans. Refer to Appendix 1 for the request for approval process for the acquisition, disposal and renewal of leases and the approval form. Where agencies are seeking approval through submitting an approval request form to the PMCoE, agencies shall forward the request to the PMCoE in advance of any critical decision date and/or prior to making a commitment. Any approval obtained through the biennial property plan process or the individual approval request process will be overridden if it is in conflict with any future all-of-government initiative proposed by the PMCoE. When acquiring leases, agencies shall obtain an independent market rental valuation from a registered valuer, who is experienced in the commercial market and ideally has experience in the local market, before agreeing to the rental being proposed. Rent Reviews Where a rent review has been initiated by a landlord, and there is no preagreed fixed rate rental review mechanism within the relevant lease (e.g. CPI adjustment or a stipulated percentage increase), agencies shall obtain an independent market rental valuation from a registered valuer, who is experienced in the commercial market and ideally has experience in the local market, before agreeing to the new rent. This applies even where the rental proposed by the landlord is a decrease in the annual rental. Prior to accepting a quote from a valuer to undertake a market rental valuation, agencies shall obtain written confirmation from the valuer declaring no conflict of interest exists. Agencies shall ensure that any valuer engaged is informed as to what should be included and excluded in their market rental assessment and is provided with the relevant lease document and subsequent variations, if any. Where there is a dispute between an agency and a landlord relating to the new rent, agency staff shall notify the PMCoE at the earliest opportunity. Agencies shall meet all lease obligations within the required timeframes as stipulated within the relevant lease. Records Management Any variation to an existing lease shall be recorded in writing (variation of lease) and executed by both parties. Agencies shall attach all lease variations to the original lease. All leases and lease variations shall be certified by way of a solicitor s certificate. All original leases and variations shall be held in accordance with the Records Management Standard for the New Zealand Public Sector which was issued under the Public Records Act 2005 and sets out the minimum requirements for the management of records by public offices. Internal processes, controls and delegations shall ensure lease agreements and provisions within leases are executed by suitably authorised personnel. Agencies shall enter all required property data into the GPP which includes but is not limited to uploading copies of new leases, lease variations, subleases, licences and settled rent reviews. 10
Guidelines Agencies should ensure that the principles and objectives of their property strategy and plans are reflected in their lease management processes, which includes lease procurement, rent reviews, lease renewals and lease variations. When negotiating a new lease with a landlord, an agency should aim to adopt a gross lease rather than a net lease. Seeking the PMCoE s approval for acquisitions, disposals and lease renewals is best managed as part of the biennial property plan update where proposed actions are included and, once the property plan is approved, can be undertaken in a timely manner. If a proposed action has not been noted in the property plan, agencies are required to submit an approval request form to the PMCoE. The approval request form can be obtained by contacting the PMCoE. Refer to Appendix 1 for the request for approval process for the acquisition, disposal and renewal of leases and the approval form. Agencies with sites in larger centres (i.e. Wellington and Auckland) should include the PMCoE in their rent review process so that the PMCoE can assist with achieving the best outcome by sharing information and experience. Agencies should allow sufficient time to meet time critical lease obligations. This will ensure internal planning and consultation with appropriate stakeholders, the PMCoE and/or other agencies can be undertaken. This will assist agencies to meet their obligations in a timely manner and achieve best value outcomes. Agencies shall obtain independent advice and commission the appropriate valuations and building reports before entering into any new lease. To avoid ambiguity around who is responsible for particular maintenance obligations, agencies should summarise lease obligations relating to both the landlord and the agency, to provide a reference guide for property and facilities staff. This will ensure agencies avoid incurring costs as a result of being in default of their lease obligations. It is recommended that the GPP is used to document such obligations and where possible, is used to run reports in relation to maintenance obligations. When engaging independent advisors for lease management purposes, agencies should ensure they follow their internal procurement procedures. If there are no procurement procedures in place, agencies should obtain quotes or estimates from at least three external service providers. Where there is a dispute between an agency and a landlord relating to a proposed market rental, agency staff should familiarise themselves with the rent review and rental dispute provisions of the relevant lease, and seek independent advice before engaging with the landlord or any party representing the landlord (e.g. agency staff may need to engage a third valuer to assess the market rental valuation report in dispute or require advice from a solicitor in regards to the rent review or rental disputes provisions contained in the relevant lease). Prior to executing any lease, agencies should ensure that the content of the lease correctly reflects what was agreed between the parties during negotiations and that there are no errors contained within the lease. Agencies are required to obtain a solicitor s certificate prior to executing a lease and have a signed copy that is kept on the appropriate file and is uploaded to the GPP. The purpose of a solicitor s certificate is to provide confirmation to agencies that all lease documentation has been completed correctly and acts as an assurance that the agencies interests have been protected. A solicitor s certificate should contain the date; type of legal document (e.g. deed of lease); name of the parties; name of the premises; physical address of the premises; legal description of the land; a statement from the solicitor confirming that they prepared the document and that it is in order for the agency to execute; and the signature of the solicitor who prepared the documentation. The appropriate government standard development agreement template should be used as a base document by agencies where a landlord is required to complete fit-out works prior to the lease being executed. 11
Scenario 1 shows the: Steps an agency should follow during a rent review Scenario 1 When Brendon arrives at work and turns on his computer, a calendar reminder comes up reminding him to check the alerts in the GPP. On opening the alerts, Brendon notices that a rent review is coming up in one months time for a site he manages in Auckland. Brendon locates the associated lease within the GPP and familiarises himself with the rent review provisions which specify that the rental must be reviewed to market. Brendon notes that there is no ratchet clause. One week later Brendon receives a rent notice from the landlord advising that a rent review is due and that based on valuation advice, the annual rental will decrease by $20,000. Brendon notices that the landlord has not provided evidence of the proposed rental and emails the landlord requesting to see a copy of the valuation report. Brendon advises the landlord that he will be obtaining independent valuation advice before responding to the landlord s rent review letter, and that he will respond to the landlord s rent notice within the 20 working days as specified within the lease. Once Brendon receives a copy of the valuation report from the landlord, he drafts and sends an email to three valuers who he knows have the required experience to undertake a market rental valuation of the premises, requesting a quote. Brendon provides each valuer with the building name, physical address, area of land leased and the term of the lease. Brendon engages the valuer who comes back with the best quote and can meet the required timeframe. Brendon provides her with the information she requires for the rental assessment (a copy of the lease, a copy of the valuation report obtained from the landlord and details regarding the costs spent on the building by the tenant over the lease term that could impact on the rental assessment). One week later, Brendon receives the valuation report which indicates a decrease in the annual rental by $40,000. Brendon sends a letter to the landlord advising him that based on independent valuation advice, the agency believes that the new annual rental should decrease by $40,000, not $20,000. Brendon attaches a copy of the rental valuation report and reminds the Landlord that he has 10 working days to respond in writing as stipulated in the lease. The landlord responds within 5 working days and advises Brendon that he does not agree with his valuer s assessment. The landlord suggests that as per the provisions of the lease, the valuers should meet to discuss how the rentals were derived and ascertain whether the discrepancy in the valuations can be resolved and a rental agreed. Brendon agrees. After numerous meetings between the valuers, the valuers recommend the parties agree to an annual rental decrease of $34,500.
Lease management guidance Government standard legal templates Type of legal template To be implemented where The government standard legal templates reflect the position the Crown wants to take in the market. Using the templates as a starting point will ensure a consistent approach is adopted by agencies when entering into lease agreements and pertinent clauses unique to government leases are not overlooked (for example, seismic rating provisions). Using the templates will also assist in increasing agencies ability to adapt, reuse and manage leased sites and to reduce the risk of the Crown entering into unfavourable leases. The following government standard legal templates are currently available and can be obtained by contacting the PMCoE: Government Standard Development Agreement (DA) Government Standard Agreement to Lease (AOL) Government Standard Deed of Lease Complex (Gross) Government Standard Deed of Lease Less Complex (Gross) Government Standard Deed of Lease Simple (Gross) A landlord is required to complete fit-out or refurbishment works of a major or complex nature. The DA will be used to record the intention of the landlord and the tenant to enter into a new lease once the landlord has completed the agreed landlord works, and the tenant has completed its own fit-out works to the premises. The building works required by either the landlord or the tenant are of a minor and/or less complex nature. The AOL may also be redrafted to be used in circumstances where little or no building works are required, but the parties need to record their agreement to enter into a new lease at a future date. An agency is entering into a lease of the whole or a substantial part of a large or complicated building (or complex of buildings) for a lengthy fixed period, or where the premises are of particular strategic importance to the tenant (e.g. head office accommodation for a large or essential Government entity, or premises where security is particularly important. The tenant is taking a lease of smaller premises, or a straightforward or less strategically important building. The Tenant is taking a lease over only parts of a building (e.g. two floors). Government Standard Co-location Agreement Private Landlord There is a need to govern the relationship between agencies or departments co-locating within leased premises owned by a private landlord. The co-location agreement is drafted on the basis that each party has its own area for its staff and the parties jointly use the co-location areas. Government Standard Co-location Agreement Government Landlord There is a need to govern the relationship between agencies or departments co-locating within a Crown owned building. The co-location agreement is drafted on the basis that each party has its own area for its staff and the parties jointly use the co-location areas. 13
When using the government standard legal templates, agencies will need to amend the templates to reflect the specific deal. Such amendments will include inserting details particular to the agreement and may include deleting clauses that are not applicable or inserting additional clauses required. If there is any doubt as to which government standard deed of lease template or development agreement template should be used, agencies can contact the PMCoE for advice. Negotiating leases Before commencing lease negotiations, agencies should have a sound understanding of their long term property strategy and ensure that the intended outcome of the lease negotiations fit within that strategy. When negotiating lease terms in relation to price risk, agencies should: Factor in the agency s strategic objectives, its budget, timetables for procurement; Be aware of any agency directive to make a trade-off with those performance risk factors (e.g. the building s seismic parameters, building code issues or the building s services); and Ensure they engage with other agencies operating in the same market. This will ensure that a consistent approach in the market is obtained. When independent advice is required, as a pre-requisite, agencies should consider those who have had experience working with Crown agencies and what the Crown s property goals and objectives are. It is also recommended that agencies check to see if any of the services being sought are covered by a syndicated or all-of-government contract. Below is a list of the types of independent advice that are commonly required: Tenant Advocates are typically property professionals who are engaged to lead lease negotiations on behalf of agencies. External Legal Counsel engaged to obtain independent specialist legal advice in the property area and to mitigate risks associated with the Crown entering into lease agreements. Note that there is an allof-government External Legal Services Contract which is run by the Government Procurement Legal Centre of Expertise hosted by the Ministry of Business, Innovation and Employment. Refer to www. procurement.govt.nz for further information. Structural and Mechanical Engineers main services sought in this area include seismic related advice, heating and ventilation, structural and fire design advice. Note that the Department of Corrections have syndicated contracts for construction consultancy services. Refer to www.procurement.govt.nz for further information. Valuers engaged to provide independent advice on market rentals applicable to the relevant property. Project or Construction Manager engaged to programme and implement fit-out and refurbishment works. Note that the Department of Corrections has syndicated contracts for construction consultancy services. Refer to www.procurement.govt.nz for further information. Architects engaged to deliver the design, relevant documentation and execution of fit-out and workplace design as specified by agencies. Note that the Department of Corrections has syndicated contracts for construction consultancy services. Refer to www.procurement.govt.nz for further information. Quantity Surveyors manage all costs relating to building and civil engineering projects from initial calculations to the final figures. Note that the Department of Corrections has syndicated contracts for construction consultancy services. Refer to www.procurement.govt.nz for further information. 14
Ensure all lease documentation is correctly completed, executed and held securely: Leases set out the rights and obligations of the landlord and the agency during the duration of the tenancy. This makes the lease a document of great significance which is contractually binding, typically non-negotiable once in place, and generally runs for a long period of time. To ensure negotiations result in best value and outcome for agencies, they should obtain all relevant information about the building, the market, outcomes of recent lease negotiations and engage appropriate specialists to assist if the deal is of a large or complex nature. Agencies should make sure that they have a rigorous process in place for the preparation and execution of all legal documentation and that internal policies and procedures are adhered to throughout the process. The process should ensure: An appropriate amount of time is allowed for the negotiations; Internal and/or external legal advice is obtained throughout the planning, negotiations and preparation of the legal documentation; A solicitor s certificate certifying all is in order for execution is provided by the relevant legal advisor responsible for preparing the legal documentation; Leases are executed by those who have delegated authority; Accounting practices in accordance with the NZ PBE IPSAS 13 are adhered to; and All correspondence relating to lease negotiations are recorded (for example, all meetings and telephone conversations recorded in writing) and stored in the GPP. Managing leases Keep accurate and appropriate records of exchanges It is important to retain all written correspondence and record the content of all telephone conversations and meetings relating to lease management issues in writing. If there is ever any ambiguity as to the intention of a particular lease provision, these records could assist in negotiations/discussions. Keeping copies of all communications (e.g. letters, emails, notes recording telephone conversations, meetings etc.) in a centralised electronic document management system will also assist in supporting the agency s position on any issues that may arise. This information can also be valuable when rental reviews are undertaken. Have appropriate systems in place to manage, monitor and report on lease and property related obligations An essential part of managing leases and property is ensuring information relating to both is recorded in the GPP system (e.g. rent review and lease expiry reports should be run and the timing of these events identified, planned for and managed appropriately). The GPP needs to be accurately updated as actions/events are completed. This will assist agencies in avoiding risks associated with time critical obligations within leases and also assist with internal and external reporting, e.g. the Crown Office Estate Report compiled by the PMCoE. Updating information as actions/events are completed is also important because the PMCoE works with the GPP property information on a regular basis. The PMCoE often makes decisions on the assumption that the information is up to date and accurate. 15
Key lease events Rent reviews This section applies to leases that do not have a pre-agreed fixed rate rental review mechanism in place (e.g. CPI adjustment or stipulated percentage increase). Where such a mechanism is in place, it must be adhered to as set out in the lease. Before agreeing to any rental variation proposed by the landlord (whether it be an increase or decrease in the annual rental), agencies must obtain an independent rental market valuation from a registered valuer. The valuation report should be compliant with the New Zealand Institute of Valuers Valuation Standards and include the following: Market rental; Evidence of comparable rents and analysis and reconciliation of the evidence to the market rent for the premises (and carparks if any); Copies of any specialist technical advice (such as engineering reports) referred to during the valuation process in relation to the premises and the building (including building services); and What improvements are included or excluded in the determination of the market rental. Agencies should contact the PMCoE if they have any queries regarding rental valuations as the PMCoE may be able to provide information from other recent valuations undertaken by agencies in the same or a similar type of space in the same area. If the evidence indicates a falling market, a landlord may decide not to instigate a rental review to avoid a decrease in the annual rental in cases where there is no ratchet clause and the provisions of the lease allow the landlord to do so. In such situations, agencies should obtain a valuation report and if a decrease in the annual rental is noted, agencies should instigate the rental review. Where existing leases have a ratchet clause, it is important to understand whether it is a hard or soft ratchet clause. A soft ratchet clause ensures the rental figure will never drop to less than the original sum agreed between the landlord and the tenant. A hard ratchet clause ensures the rental figure will never drop to less than the last rental figure agreed at the previous rental review. Agencies should ensure any clauses subject to time being of the essence are fully understood and adhered to. Lease renewals Agencies must obtain prior written approval from the PMCoE to renew an existing lease. This approval may be obtained through noting a renewal in the biennial property plan agencies are required to submit to the PMCoE for approval. Alternatively, individual approvals can be sought by submitting an approval form to the PMCoE. Refer to Appendix 1 for the request for approval process for the acquisition, disposal and renewal of leases and the approval form. It is important to fully understand renewal provisions within a lease to ensure that favourable options available to agencies are not missed. Lease renewals are not generally activated automatically and require the agency to provide the landlord with written notice as to its intention to renew the lease within a specified timeframe (e.g. written notice of the intention to renew, or not, may require three months or potentially 12 months prior written notice). Agency staff should also consider that at lease renewal an opportunity exists to approach the landlord to amend existing lease provisions, raise any issues relating to service or maintenance and seek investment such as new carpet. Although lease provisions can be varied at any time during the term of a lease if the landlord is in agreement, approaching the landlord at lease renewal time may provide the agency with additional leverage. E.g. an agency may wish to amend or include a more stringent provision in regards 16
to seismic issues relating to the building and may choose not to renew the lease if the landlord does not agree to the variations being proposed. It is advisable that these types of discussions are instigated as early as possible to ensure agencies have leverage. Lease expiry It is important for agency staff to be aware of when their leases expire and be familiar with the provisions relating to negotiating a new lease with the landlord if the agency wishes to remain in the premises beyond the term of the lease. It is equally important to understand the agency s obligations at expiry if it has chosen to exit the premises; such as notifying the landlord of the agency s intention to not remain in the premises upon expiry, and maintenance and reinstatement obligations (e.g. organising for the carpets to be professionally cleaned, painting the walls and reinstating the office space). The standard process for make good would require a review of the lease to clarify and confirm the agency s obligations. It is also recommended that agencies obtain an estimate from a quantity surveyor or a quote from a contractor so that agencies are aware of the costs involved in reinstating the premises. Any estimate or quote will need to include all make good costs that arise when fixtures, fittings and plant and equipment are removed from the premises. The standard government deed of lease templates do not require agencies to reinstate the premises at the end of a lease term or at an earlier surrender or partial surrender of the lease. Maintenance obligations of the landlord and the agency as defined within lease agreements Agencies should have a clear understanding of what is required of both the landlord and the agency in relation to maintenance obligations throughout the term of the lease. It is easy for the responsibilities to become blurred over time. Creating a schedule specifically outlining the pertinent maintenance obligations within a lease, who is responsible for each obligation and when each obligation needs to be undertaken will ensure there is no ambiguity throughout the term of the lease. Refer to Appendix 2 for the facilities maintenance obligations template which can be used by agencies as a starting point when creating a schedule. Additions and alterations Prior to making any additions or alterations to any leased premises, agencies should check the applicable provisions within the relevant lease. It is common for agencies to require prior written approval from the landlord before any additions or alterations can be made. In some instances local authority consent may also be required. 17
Facilities management Standards To ensure that both the agency and the landlord meet their obligations, agencies shall maintain a schedule recording the landlord s and the agency s facilities maintenance obligations for each site as set out in each lease. Refer to Appendix 2 for a template that agencies can use. Agencies shall develop and maintain a tenant planned maintenance schedule and budget for each site for a rolling four year period. Note that this differs from the ten year asset management plan. Agencies shall ensure they are aware of relevant health and safety legislation and procedures and ensure they are implemented by all facilities maintenance contractors who are undertaking tasks on agency sites. Agencies shall ensure they monitor, review and update existing systems which they are responsible for (e.g. lighting, security systems). Facilities management staff shall be familiar with and understand their role within the agencies business continuity plan. Guidelines When creating a schedule of facilities maintenance obligations, agencies should include a list of all the facilities maintenance obligations required, who is responsible for undertaking such obligations and when the obligations need to be met. Facilities managers should ensure they are familiar with their agency s business strategies and property plans and incorporate their business intentions into facilities planning and maintenance. Facilities managers need to ensure that they are familiar with the legislation and regulations which govern the operation of their property portfolio. The health and safety of staff and visitors (including contractors and sub-contractors working on site whether completing tenant or landlord works) is of paramount importance. Awareness of and compliance with relevant legislation and regulations is essential. In addition to statutory obligations, all contractors undertaking work on an agency occupied site should take reasonable care to ensure that both their own employees and any persons affected by their acts or omissions at work are safe and not exposed to risks to their health and safety. It is also important for facilities managers to be aware of the health and safety, employment and training standards of all contractors, ensuring that responsibilities are passed on so that sub-contractors are also compliant with relevant legislation and procedures. Agencies should not take on a contractor who has a poor health and safety record. If an agency does and there is a serious issue on site, the agency may be held responsible for their poor performance. 18
Agencies should ensure that all contractors identify possible risks prior to commencing works and identify and implement measures that will mitigate the identified risks. The performance of contractors should be monitored by agencies, particularly quality control, methods of working and standards of supervision. It is recommended that contractors are performance managed against key performance indicators. Agencies should ensure that contractors are adequately insured to the level of indemnity required by the contract. This will cover liability arising from injury and third party liability. Agencies should ensure that contractors understand the need to report any accident or dangerous incident to enable the appropriate preventative actions to be undertaken. Agencies should investigate all accidents that occur on its premises and expect full cooperation from contractors and their employees to establish the cause of such accidents and the remedial actions necessary to prevent recurrence. Any accidents should be recorded in a register. The register should document details of the accident, how the accident was dealt with and the steps taken to prevent such accidents from occurring in the future. Note that criminal checks/security clearances may be required before contractors and sub-contractors can undertake work on particular sites. The facilities staff are responsible for ensuring such clearances are in place before providing access to such sites. All assets (e.g. security systems) should be monitored and reviewed on a regular basis to minimise having to act reactively when an asset fails to operate as it should. The approach taken to maintain assets should be appropriate to the criticality of the assets. 19
Facilities management guidance This section is aimed at assisting facilities managers to operate in a proactive way which will lead to a more effective service being provided and in some instances, cost savings. The National Australian Built Environment Rating System as adapted for New Zealand (NABERSNZ) can be used for carrying out an energy audit. These ratings could be undertaken as a self-assessment, or undertaken by a NABERSNZ Accredited Assessor. Energy efficiency Cabinet has an expectation that agencies will adopt cost effective options for managing and reducing their energy consumption. The all-of-government Energy Management Service s is managed by the Utilities Centre of Expertise at the Ministry of Business, Innovation and Employment and has been set up to manage agencies energy needs, and to increase both energy efficiency and sustainability. The service can assist agencies in energy improvements, maintaining and reporting, and qualitative analysis. For further information on all-of-government Energy Management Service s refer to www.procurement.govt.nz. Before any measures and targets can be set, agencies need to have a clear understanding of the current state of their energy use at an individual building/premises/tenancy level. This understanding can be gained in a number of ways as follows: Establish energy use in both consumption and dollar terms for the past 12 months. Undertake site audits to identify and document the services/activities/ equipment that contribute to energy consumption where it would be cost effective to do so (e.g. it is more cost effective to undertake such audits on larger sites). Prepare an action plan that will lead to reduced consumption and cost, and assign the responsibility for the plan and reporting to an appropriate member of staff. If multiple sites are involved, energy usage accountability should be managed centrally. Undertake invoice audits to confirm that tariffs, charges, etc are correct (service providers under the all-of-government energy management services contract are available). Metering of sites should reflect the size and expected tenancy of a site, with the flexibility for separate future floor by floor tenancies. E.g. for a standalone tenancy the electricity should be all powered through a single meter. The one meter should be a time-of-use meter, so that half hourly power can be analysed; downstream. Check meters should also be installed for central power (HVAC, lifts, exterior lighting) and floor by floor check meters. For multi-tenanted buildings there should be one time-of-use meter at the gate that all tenants can access data from; one downstream time-of-use meter for central power; and a downstream check meter for each floor (either a time-of-use meter or a non-time-ofuse meter). Identify and put in place strategies that support sustainable energy use practices. Seek senior management support and approval of these strategies. Provide an annual report back to senior managers updating them on progress across the portfolio. This report back should highlight individual performance across all sites. 20
Communicate the situation to all staff, outline the agreed strategies and how staff will need to use the space, expected outcomes and how their efforts will contribute to these outcomes. Facilities staff should understand the energy supply contracts in place across their various sites and where possible, transition to the all-ofgovernment energy procurement regimes. Further information on this is available at www.procurement.govt.nz. Achieving cost efficiencies through repairs, maintenance and operations Getting the best out of a property portfolio and finding ways of effectively reducing operating costs are key responsibilities for an agency s facilities management team. Modest changes can generate significant financial benefits. It is important to establish a base of information for each site within an agency s property portfolio relating to what the service providers are doing on each site, how often they are doing it and what it costs. Agencies should identify opportunities where their property portfolios can be managed more efficiently or where services could be improved. Accessing any all-of-government or Common Capability Contracts which are available for the services required is also strongly recommended. It is also important to ensure all facilities management contractors are appropriately performance managed against agreed key performance indicators. It is recommended that a common methodology for scoring essential areas of competency, insurance, safeguarding, solvency, health and safety, sustainability and performance is created. This could be set up using a spread sheet and setting up a scoring system. Setting a minimum acceptable score immediately gives agencies a methodology for assessing whether the contractors on the selection list are of sufficient quality and whether agencies need more contractors to provide a higher level of service. This will also allow the senior management team to see that due diligence has been exercised in procuring services. For guidance in relation to asset management, refer to the Standards and Guidelines for the Management of Lessee Assets which has also been produced by the PMCoE. Outsourcing of facilities management services or in-house staff The decision as to whether to outsource facilities management services or have in-house staff undertake such services will be based on an objective assessment of service requirements, in-house expertise and specialist needs and cost. Alternatively, those agencies who do not have the resources or the relevant experience within their property teams to undertake the facilities management services in whole or in part, could approach another agency who does have the resources to undertake the services on their behalf. The decision as to which sourcing option to choose should not be made based on just one criteria, for example, it is cheaper to outsource. The decision is a significant strategic decision and should be made taking all relevant factors into account. Agencies should evaluate the efficiencies to be achieved through each option, assess the importance of transferring risk from the agency, assess whether it will free up agency staff time to focus on other services, and consider the possibility of bringing in required specialist staff to achieve cost savings. If a decision to outsource is made, when procuring service providers, agencies should do so through a Common Capability Contract, where such contracts are available. 21
The decision to outsource should stand for the contract period, which is commonly three to five years. If the contract period is for a longer duration, the contract should still be reviewed every three to five years. It is important that the provider s performance is reviewed against agreed key performance indicators on a regular basis. At the start of a contract some of these measures should be reported on a monthly basis. The cycle for reviews should be amended as performance and confidence builds. Key sourcing options In-house Outsourcing Undertaking the facilities management services within the agency Placing the facilities management services with an external organisation or contractor Cross Agency Sourcing Utilising resources from another government agency 22
Glossary of terms Glossary of terms 23
Glossary All-of-Government Contracts: Establish a single supply agreement between the Crown and approved suppliers for the supply of selected common goods and services purchased across government. Building Condition Assessment: A complete review of the current state of a building to determine its condition and where issues are identified, what works are required to remedy the defects and the cost of the works. It should be provided in a report format and include photographs and diagrams outlining the defects. Business Continuity Planning: A plan to continue operations if a place of business is affected by adverse events, such as an earthquake, storm or fire. Such a plan typically explains how the business would recover its operations or move operations to a recovery site. The plan can include recovering from different levels of disaster which can be short term, localised disasters, to days long building wide problems, to a permanent loss of a building. Capital Expenditure: Expenditure required to create a new asset, extend the size of an existing asset, or extend the useful life of an asset. Common Capability Contract (CCC): An agreement with one supplier or a panel of suppliers for goods, services or works that the government purchases. It is established and managed by a functional lead agency on behalf of government agencies or by a lead agency appointed by a functional leader. Crown Office Estate Report: Reports on the progress made during the year towards the government s goals for its property. These goals are to realise efficiency and effectiveness gains in Crown property management; build property management capabilities within departments and Crown agencies; optimise the use of the Crown estate and build collaboration and co-operation between government entities in property and property-related activities. Facility: A single building or a group of buildings serving a common overall purpose, e.g. office accommodation. Facilities Management: Integrated process to support and improve the effectiveness of the primary activities of an organisation through the management and delivery of agreed support services for the appropriate environment needed to achieve its changing objectives. Facilities Planning: Is a phase within facilities management for examining the case for changed or new facilities and the subsequent programming of design and construction. FTE: Full Time Equivalent. For the PMCoE s purposes this means total employees or the headcount accommodated, including permanent and fixed term employees, as well as contractors and temporary staff. Government Property Portal (GPP): Is an integrated workplace management system used by the PMCoE and government agencies to manage and monitor office and public interface property. Gross Lease: A lease arrangement in which the tenant pays only a fixed rent and the landlord is responsible for the associated general expenses such as insurance, maintenance, and rates. The landlord may also pay for rubbish collection, security and utilities. Glossary of terms 24
Hard Ratchet Clause: Ensures the rental figure will never drop lower than the last rental figure agreed at the last rental review. Head Count: The number of employees (full time and part time) who are accommodated within an office building. This includes contractors and consultants who occupy workstations. Lease: A legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the tenant s use of an asset and guarantees the landlord s regular payments from the tenant for a specified number of months or years. Both the tenant and the landlord must uphold the terms of the contract for the lease to remain valid. Lease Expiry: Refers to the end of a lease. One requirement for all leases is that the duration of the lease must be specified. Therefore, the tenant agrees to leave the premises upon the expiration of the lease, unless other arrangements have been agreed upon by the landlord and the tenant. Some leases may provide for an automatic renewal clause. Many leases contain optional clauses that provide the tenant with the option to renew the lease before it expires. Life Cycle Costing: The process of determining the cost of a building over its lifetime, in present value terms, which includes all costs associated with the planning, design, construction, operations, maintenance and capital improvements over time, less any residual value and ultimately the cost of disposing of it. Maintenance: The work necessary to preserve the integrity of the asset, extend its useful life and maintain functional reliability through scheduled inspections and adjustments, major and minor repairs, restoration and replacements. The works take into account the effects of normal wear and tear and do not materially increase the capital value of the asset. Net Lease: Requires the tenant to pay a portion of all of the rates and maintenance costs for the property in addition to rent. Net lease requirements are most commonly used when dealing with commercial buildings. Property owners use net leases in order to shift the burden of managing rates, insurance and fees to the tenant, and may charge less rent as a result. Though potential tenants may not have to pay as much rent, they are still required to pay rates and fees making this an added risk. NZ PBE IPSAS 13: Prescribes, for tenants and landlords, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases. Operating Costs: The direct and indirect costs associated with occupying a building such as maintenance, cleaning, waste management, security, energy, water, telecommunications and building management. Outsourcing: Using a supplier outside the organisation to undertake a service on behalf of the organisation. Planned Maintenance: Planned maintenance is somewhere between planned preventative maintenance and capital replacement. It includes replacements, upgrades or refurbishments that need to be planned to be replaced ahead of obsolescence. They are not large enough to be capitalised or to form part of a maintenance regime or planned preventative maintenance. Rarely will a facilities manager replace things before they break and certainly not if, through good maintenance, the term continues to work at its optimum performance. It is important, however that a balance is found to provide and account for the potential to replace, even if it can be avoided. Planned/Preventative Maintenance: Covers tasks that are carried out at a predetermined frequency to maintain the efficiency of a piece of equipment or a process. Planned preventative maintenance is carried out to stabilise problems, or preferably, to prevent problems occurring in the first place. Public Interface Accommodation: Office areas used primarily for face-toface interactions with clients and the public for the purposes of delivering government services. These areas generally do not include workpoints. Glossary of terms 25
Reactive Maintenance: Day-to-day maintenance tasks that typically consist of rectifying breakages and failures. Such tasks are generally low in value but there may be a substantial volume of them. Note that failure to undertake day-to-day maintenance tasks may have health and safety implications. Renewal Option: A clause in a lease that outlines the terms for renewing or extending the original lease agreement. The renewal option appears as a covenant in the original lease and provides specifications under which the tenant can renew or extend the original lease term for an additional, specified time and rate (rent). A renewal option provides the tenant the option, but not the obligation, to renew or extend a lease agreement beyond its initial term. Service Provider: An organisation providing facilities services, usually under the terms of a facilities management agreement. Soft Ratchet: Ensures the rental figure will never drop to less than the original sum agreed between the landlord and the tenant. Sourcing: Determining the source of delivery of a facilities service from inside or outside the organisation. Total Facilities Management: A single supplier taking responsibility for the delivery of all facilities services. In practice this may be a supplier managing services being delivered by a number of subcontractors. Whole-of-Life Cost (WOLC): Considers the full life cycle costs of an asset from acquisition, a full life of operating costs, and disposal. Consideration should be given to any initial capital or operating costs, plus operating costs for the expected life of the asset (operating expenditure will include that required to ensure an asset remains fit for its intended purpose over its expected life), plus any anticipated disposal or transaction costs. The period covered by this analysis varies according to the nature of the proposal or product, but for practical purposes may be considered to be the lower of the expected economic life of the asset or 20 years. For further information or methodology refer to the guidance issued by The Treasury. Glossary of terms 26
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