Property Asset Management: The Handover Phase

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23/05/2017 - Real Estate

Our recently launched Property Management white paper investigated the most common challenges facing property unit owners during the handover and Defect Liability Period stages, suggesting relevant solutions to mitigate these issues. This column analyses the most frequent issues faced during the handover phase.

The handover phase commences as soon as the developer receives the Building Completion Certificate. During this phase the investors should seek to ensure the property is free of defects before accepting the handover of the unit(s). It can be challenging for an investor to identify any technical faults affecting a property; therefore, it is advisable to consult an expert who can assume this responsibility.

Property handover checklist and main challenges

1. The first challenge concerns the documents handover. In most cases, when handing over a building, investors and some developers are unaware of the essential documentation required to successfully hand over a property. There are six key points:

a) The ‘Building Permit, Certification & Fit for purpose’ provides a list of the main documents required such as the approvals from the Municipality and Civil Defense.

b) The Architectural and Engineering drawings compare the theoretical design to the practical implementation.

c) The ‘Testing and commissioning documents’ verify that the consultant or appointed third-party company has produced and signed off the testing & commissioning of the building. Appendix 1 provides an extensive list of documents covering all aspects of the building,

d) The ‘Operations & Maintenance manuals library’ provides a list of specific building insights. The Facility Management Company and the RCAM should receive adequate training, along with the manuals listed in the Appendix, to ensure operations and building maintenance runs smoothly.

e) The ‘Statutory, Legal & Insurances’ provide a detailed list of the additional legal and insurance documents required along with the verification of the existing warranties for all equipment.

f) The ‘Preparation for Owners Association’ includes all documents pertaining to a strata-owned building.

2. The second challenge concerns the “fit for purpose” design. ‘Fit for purpose’ describes the obligation to design a product that is fit for its intended use. Even though design and planning occurs before the construction commences, it is imperative the appointed asset manager ensures the functionality of the residential or commercial unit during the handover phase and before it is received by the investor.

The appointed asset manager is required to analyse the overall space utilisation and efficiency from an operational perspective. The unit should provide optimum space standards for its intended use. For example, the bathrooms and the kitchen must be of adequate size, and all fittings should meet quality standards and be in working order. The design of a unit should ensure that fixtures are positioned in a functional way; for example, doors installed within the unit should not touch one another when they are open.

The design of the furniture installed in the unit also influences the functionality and spatial flow. For example, bulky furnishings may reduce the habitable space of the living room or the bedroom while large tables or desks placed in a small office will impact functionality. Thirdly, the appointed asset manager must detect any missing and/or misplaced components within the unit, such as missing electrical sockets or the absence of a specified storage room or proper lighting.

Problems associated with design not ‘fit for purpose’ can be divided into two categories. The first relates to faults that are detected upon initial inspections and can be immediately rectified by the contractor. For example, if these errors are not listed in the initial design or approved drawings.

The second category relates to faults that only become obvious a few months or years after the property’s handover. After some time, the unit might be affected by leaks due to incorrect piping design or a foul odour may result from a faulty AC unit. If these issues arise, it is difficult to hold the developer and/or the contractor accountable. Therefore, the appointed asset manager’s expertise is crucial in detecting any defects that may arise in the future by thoroughly inspecting the unit or building before the handover is finalised.

The ‘fitness for purpose’ warranty can be expressed in the contract to ensure the design is fit for purpose. It is therefore important to strengthen the relationship between the asset manager, the developer and the contractor to address any potential problems.

In order to avoid making any large modifications, it is highly recommended for investors who own the building to instruct the appointed asset manager to inspect a mock-up room before the fit out is conducted or before purchasing any furniture. The inspection will highlight operational issues relating to the layout and design, minimising the chances of a unit being deemed unfit for purpose during the handover phase.

3. The third challenge relates to the testing and commissioning. This process is often overlooked by the investors. The equipment is often not commissioned in a sensible manner and it is therefore mandatory for the appointed asset manager to verify that the proper testing and commissioning has been completed as it guarantees the functionality of every area in a building.

If proper testing and commissioning is not conducted, investors are likely to face ongoing operational issues. All aspects of the building should be tested and commissioned including lighting, life safety systems (fire alarm, sprinklers etc), air and water balancing, the HVAC system, and domestic hot water systems, among others. If such tests are not carried out, investors are likely to be obliged to call the contractors to resolve operational issues on a regular basis.

4. The fourth challenge is the snagging and de-snagging process. Some details are often overlooked prior to handover. The investor must inspect the unit(s) thoroughly to detect any small defects and faults. Minor issues such as leaks, wall cracks, and Mechanical, Electrical and Plumbing (MEP) faults may arise. If a snagging list is not prepared and / or the de-snagging process is conducted carelessly, undetected defects will require extensive remedial works, which can prove to be costly and time consuming. The common causes for these minor defects include a lack of formal training, and poor selection of sub-contractors by the contractors during the construction phase. Faults, which are left undetected, will become obvious when the building becomes operational.

If owners fail to consult experts with specialist knowledge, underlying issues will go unnoticed. Therefore, it is important that a credible and professional asset management firm is commissioned to carry out the snagging and to resolve any issues encountered.

For more information, please click here view the full white paper