Shopping Center World: How does preventive maintenance impact the overall property?

Bill Pegnato: The goal of preventive maintenance is to extend the life of the building systems for as long as possible. Preventive maintenance reduces future capital expenditures and maximizes performance of these systems today. The systems that benefit most are HVAC and roofing.

SCW: Who is responsible for preventive maintenance - the landlord or the tenant?

Maryella Pegnato: In general, both are responsible, but the details vary by lease and property. Some leases require tenants to cover HVAC maintenance but not roofs, while other leases put all maintenance expenses into CAM and allow the landlord to supervise vendors. Most leases are negotiated by brokers who rarely consider preventive maintenance, and it's usually not a deal-breaker item. But maintenance is an issue the tenant and landlord will face long after the deal is signed, and both sides need to uphold their end of the agreement in order to keep the building in good condition.

Bill Pegnato: In our experience, leases that require the tenant to be solely responsible for the HVAC maintenance set up a lose-lose situation for both the landlord and the tenant. Few small retailers are set up to handle building maintenance but may accept responsiblility without a full understanding of what it takes to follow through on the obligation. These small retailers are most concerned about serving customers and selling products, not maintenance. Maintenance becomes the last line item to receive attention, and it's something they may know little about. This lack of attention and knowledge sets up a situation where a less-than-qualified vendor is used or, worse, the work never gets done.

SCW: How can responsibilities be distributed better?

Bill Pegnato: This can be addressed during lease negotiations with a simple question: Does the retailer have facilities management capabilities at the corporate level? If so, they are more likely to handle preventive maintenance and can do so efficiently and cost effectively. For smaller retailers, the burden of preventive maintenance can be too great.

When tenants have responsibility for preventive maintenance, the landlord loses control over the quality and consistency of the work. It can become difficult for landlords to hold manufacturers responsible for defective parts or installations and even to enforce warranties when required maintenance isn't completed or documented properly.

SCW: Should landlords take the lead in preventive maintenance?

Maryella Pegnato: In truth, landlords have the most to gain when building systems can be extended, since replacement costs are hard on their bottom line. However, landlords and tenants need to work together to ensure the property is maintained.

Bill Pegnato: We see the landlord-tenant relationship as being based on 72 degrees. At this temperature in the store, customers are comfortable and more likely to spend money, increasing retailer profits. When tenants are profitable, they are more likely to stay put, which makes landlords happy.

This common goal of maintaining 72 degrees is a good beginning for a tenant and landlord partnership. A successful landlord-tenant partnership gives both sides the opportunity to meet their long- and short-term goals.

The third element of the landlord-tenant partnership is the vendor. A qualified vendor should work with both the landlord and tenant to provide a clear picture of the preventive maintenance required to keep systems at optimum levels, while recognizing the need for the landlord and tenant to contain costs through sound decision-making. The basis of these preventive-maintenance decisions should be real-time data collected by qualified, trained technicians.

SCW: How can landlords maintain competitive rates if they handle the preventive maintenance?

Maryella Pegnato: With a solid program based on real-time data, preventive maintenance can actually become a profit center for the landlord and support the landlord's ability to keep rates low.

Bill Pegnato: We work with landlords to set up preventive-maintenance inspections and checklists. This gives the landlord the ability to anticipate costs and work them into the budget. In the case where retailers are responsible for maintenance, the landlord can offer a concierge service by providing the retailers with prequalified vendors that support a national pricing structure, offer quality workmanship and will report back to the landlord on the condition of the system. For vendors, this can be a captive customer base, and if it's a good relationship, the vendors should have a vested interest in doing the work right.

SCW: What about emergencies?

Bill Pegnato: Emergencies have a tendency to show the weakest part of the system, and this holds for property emergencies. In a number of cases, we've seen repairs delayed because the tenant didn't know who to call, and the landlord presumed the tenant was handling the situation. The line of responsibility wasn't clear, and the property can be further damaged with the delay. Beyond damage, the retailer can experience an increased loss in business while waiting for action to be taken.

Maryella Pegnato: These situations are easily avoided with clear communication up front. Landlords can provide emergency numbers that retailers can post in the back office or include in handbooks. This gives retailers the information they need to respond quickly in an emergency, and the landlord knows procedures will be followed and qualified vendors used. Tenants should request this information and double-check the numbers.

SCW: How should budgets for preventive maintenance be established?

Bill Pegnato: More and more, shopping center owners are facing tighter margins and landlords are seeking greater value from each line item. Maintenance budgets are often based on expense history, which may not leave room for surprises such as weather or account for the effects of aging systems. The vendor partnership can play a key role in budgeting. The vendor should provide important information in projecting long-term maintenance requirements and help owners know when to expect capital expenditures for equipment replacement.

Maryella Pegnato: Preventive maintenance can also include emergency service to help deal with unexpected weather such as El Nino. These programs should include a free leak service and a focus on HVAC to keep equipment in top-notch condition so that it can handle extreme heat.