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Blog: Deferred Maintenance for Commercial Properties

Are you considering purchasing a property, or have you taken on a new property to manage? Then you will want to inspect for deferred maintenance items. Deferred maintenance is building care that was not performed when it should have been.

Not replacing or repairing a cracked window or failing to inspect and lubricate pumps on schedule are examples of deferred maintenance. These items can quickly overwhelm your budget for ongoing repair and maintenance because there is no telling when they will suddenly reach the point where repair is critical. 

If you are thinking about buying a building, it is a good idea to bundle the expense of any deferred maintenance into your acquisition costs. A distressed building might seem like a good deal until you add up all the items needing attention. 

Keep in mind that simply discounting the cost of repairs from the purchase price can create financing problems, because it’s not uncommon for lenders to refuse properties with deferred maintenance. You may need to arrange for repairs to be done in advance of the purchase.  

Whether you are just taking on a deferred maintenance project or you have deferred your own maintenance in the past and are looking to bring your property up to date, here is a plan to help you through the process. 

7 steps for troubleshooting deferred maintenance 

1.    Make a list. The first step is to take inventory of your maintenance needs. Go through the entire building from foundation to roof and detail everything that needs repair. Don’t forget to include the landscape and other exterior areas of the property. 

2.    Calculate the consequences. What will happen if the issues are not addressed? How will it impact other parts of the building? For example, a broken window located near a plumbing stack could lead to frozen and burst pipes and, thus, to extensive water damage. Safety should also be a high priority. Poorly lit stairs or heaving sidewalks might not compromise a building’s integrity, but they can easily lead to injury and litigation.

3.    Understand the context. Next, identify why the maintenance has not been addressed. There are many legitimate reasons for maintenance to be deferred. Was it a lack of expertise? Unwillingness to interfere with a function of the building? Inadequate cash flow? Availability of parts? Especially if you are considering investing in a property, being aware of the reasons for neglect can help you decide whether and how to go ahead with the project. 

4.    Prioritize. If you have a backlog of maintenance projects, you probably will need to address them in stages. Place each deferred maintenance item into one of the following categories:

•    Critical—These are maintenance items or conditions that are immediately affecting safety, health and/or profitability. Take care of safety- and health-related problems first. Then address profit-impacting problems, for instance, repairing damage that prevents a unit from being rent-ready or conditions that threaten to cause further damage.
•    Pending critical—These are items that will become critical within a year or so. A good example is an old boiler that you will want to replace before it fails. 
•    Important—These are items that might not be critical right now, but if left too long, they could become so. This category also includes non-critical improvements that could significantly increase long-term profitability if implemented—for example, energy-efficiency measures.

5.    Create a budget. Once you know your critical, pending critical and important issues, find out what it will cost in time and labor to correct them. Create a budget and implement a plan to address these issues. You might want to create both a short-term budget to address issues of immediate concern and a long-term plan to bring the property to its peak profitability over three, five or 10 years.   

6.    Look for funding. The next step is to figure out where the money will come from to fund the repairs. Are there grants or other programs that can assist with costs? For example, there are state and federal energy efficiency incentives available that can help fund the replacement of items such as boilers, furnaces, chillers and lighting. Your city manager or other local official might be able to suggest other funding sources as well. 

7.    Adjust your maintenance budget and policy. Using the knowledge you have gained through documenting and budgeting for your deferred maintenance items, create a realistic plan to avoid recurring problems with deferred maintenance. 

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