Landlord Fairy Tales:
Reinstatement Rubbish
Issue 45 - September 08

As companies become more aware of their environmental footprint tenants are beginning to question the wastage associated with end-of-lease reinstatement (as opposed to just the cost). With a little help from Snow White we get to the bottom of who needs to change their behaviour: turns out it's everyone.

While technically the last in this series of Landlord Fairy Tales it is unlikely that they will disappear for good. Some situations or problems are recurring themes that try as we might, never get solved. This month's topic is a case in point. Absolutely no-one is willing to take responsibility, even partially, for a practice that everyone agrees is "terribly wasteful". It also brought up a possible name change, the next fairy tales might well focus on real estate agents, building managers, office tenants or any of the other groups of people supposedly responsible. Its not surprising that no-one acts as there are so many other people to point the finger at, seven of them in fact. As companies become more aware of their environmental footprint tenants are beginning to question the wastage associated with endof- lease reinstatement (as opposed to just the cost). With a little help from Snow White we get to the bottom of who needs to change their behaviour: turns out it's everyone.

Interior designers, contractors, product suppliers, lease drafters, government, building managers and tenants - that's seven. Who are alternately grumpy, happy, dopey, lazy...is this reminding anyone of a story they've heard before? Traditionally the story of Snow White is about a perfectly formed young woman, everyone's ideal, who is cast out by the new incoming Queen who has decided the girl is cramping her style. A hunter commissioned to 'fix' the problem tricks the Queen into believing Snow White is out of the picture. Meanwhile Snow White has come across a group of dwarves and is paying her way by keeping house for them. The Queen finds out about it and takes it upon herself to get rid of the girl for real.

Finally she is successful but a dashing Prince comes along and dislodges the bit of apple that choked Snow White. Good as new, the two are married. Several parts of this tale can help us understand how to stop wastage (and cost!) on interior fitouts of retail and office space.

The problem
The reinstatement problem really varies depending on who is complaining about it. Some people even seem baffled that there is any sort of problem at all. So let's start with a more general overview. The construction industry creates up to a third of all landfill. It is notoriously and unashamedly wasteful, and this applies as much to interior contracting as to larger scale projects. That each floor of every grade A building is gutted and then refitted every time a new tenant begins their lease (as often as every three years) is a shocking generator of landfill waste.

The second problem, cost, is really only a problem for the tenants. The need to recoup, reduce or avoid reinstatement costs at the end of each lease is a battle region-wide. Tenants see themselves as "poor Snow White, cast out, a victim of the system. That horrid hunter (read 'cowboy of a real estate agent') could have got me out of this better but now I'm sitting here putting dinner on the table for a bunch of forest dwellers." Even better, in the original story instead of seven dwarves, Snow White was paying her keep to seven robbers.

The blame game
No one group has caused either of these problems, yet everyone is living with the consequences of their own actions. All seem to feel like they can't do anything to change the situation. Generally however two groups are blamed for problem one: landlords and tenants. Most people interviewed for this article said that tenants prefer to move into bear shell or 'original condition' space so they want complete reinstatement. Yet Jeremy Kwok, Regional Real Estate Director, WPP, parent company of numerous media groups with multiple leases all over the region is pretty clear, "that is not what tenants want".

Most tenants would agree. Tenants reinstate because that is what they are required to do in their lease, says Kwok. At termination, the argument generally turns to what needs to be reinstated or replaced. He says that generally this clause is enforced because the new tenants will not want to take possession and deal with parts of the fit-out that they don't want themselves.

Alfred Lo, Business Development, Hysan, proposes a solution that Hysan already adopt with certain tenants. Instead of requiring the tenant to reinstate, they take the funds required from the tenant and if a new tenant is willing to take the space "as-is" they refund the sum to the departing tenant. People who benefit from this scenario are:

. the landlord (its often swifter and there is little risk on their part),
. the departing and new tenant (cheaper, quicker and less trouble) and
. neighbours (saved from the disruption of reinstatement)

Contractors, product suppliers and designers may also benefit. Lo says it isn't unusual for organisations to accept only some parts of the space. It can get messy. For example new tenants might replace the wallpaper but keep the carpet. However, the need for replacement usually comes not through wear but because the space is not suitable for this company's requirements. Things that are relatively standard in a certain type of company, such as server rooms, are likely to remain in place. The interior design consultant plays an important advisory role as to what should stay and what should go he says.

PhiPhillip Marchione of design firm SLA's Malaysia office says that the practice of reinstatement in higher grade buildings is standard regionally though it can be negotiated in some cases. This is more likely when exiting tenants find the new tenants themselves, or if the land lord knows of a specific tenant who wants an existing fit out.

The process can get complicated, with Kwok suggesting that tenants take their own "before and after" photos of the space and get their own line item quotes from subcontractors, as landlord nominated subcontractors will invariably charge more. The landlords prefer to use their own as they know the building better. Usually nominated subcontractors for fire services and HVAC (though not always electrical services) are stated in the fit out guidelines in the lease, says a representative from design firm PMCA. As agents of the landlord, the nominated contractors will often not discuss their quote with the exiting, incoming tenants or their designers.

As Teri Liew, Keppel Land, landlord of several grade A buildings, points out; there is no relationship between the exiting and the new tenant. The landlord owns the building, they want it to continue to be attractive and of a consistent quality for incoming tenants so they require demolition and reinstatement.

Even in Kwok and Lo's "ideal scenario" where the landlord holds the money until the next tenant has decided what parts of the existing fit out they want to keep, things can go wrong. Having been given money everyone knows that landlords have a propensity to hang on to it for as long as possible and some unscrupulous ones don't bother giving the money back regardless. This practice does not help those smaller more flexible landlords who are actually trying to give their clients better service. Again it comes down to communication. This is where the dwarves come in.

The other snow white or no more martyrs
Another way of looking at the story through the looking glass of a fairytale might be to view the fit-out itself as Snow White, who rather than looking for a new home is actually looking for a new tenant. In this scenario you could see the dwarves and the hunter (that is all parties in the industry including regulators, designers, real estate agents) as people whose job it is to help her through the transition. Who knows the forest better? Rather than sitting around accepting the status quo why not suggest other companies that could take the space, encourage the communication. There is a tenant out there for any existing space.

Instead of leaving behind a great mess in its wake, a tenant could prepare in advance for reinstatement. There is no reason why everyone in the process cant help with this. Tenant's contractors work closely with the designers and, says CY Chan, Project Manager Sonic (China) Ltd, many materials can be reused. He believes that the amount of materials kept and the amount demolished and sent to landfill solely depend on the decision of the client/ tenant. His government client use reusable partitions, so walls do not need to be demolished. Product suppliers such as Clestra are stepping up with green (not to mention cost-effective) solutions that can be re-used and/or recycled.

So rather than shaking your head an blaming everyone else take action to find ways to find the fit-out equivalent of a Snow White, and rather than allowing her to be badly treated and replaced why not design and keep her ready for when the next prince moves in. RFP

The reinstatement "Save Snow White" campaign!
Your office may have been through a rough time, but you can still be the prince that saves the day!
. Be a part of the new tenant search process.
. Tell your landlord that you are willing to work with the new tenant.
. Listen to the designer at fit-out so that you can save later on reinstatement
. Use reusable partitions, furniture, lighting, carpet
. Protect windows, especially in older buildings that scratch easily
. Use recyclable products and make sure they are recycled
. Require that nominated subcontractors are environmentally certified and are committed to recycling
.

NOMINATE NOW

Subscribe Now

Sign Up for Ezine

Past Issues