What Is a Property Condition Assessment?

A property condition assessment, or PCA, answers a practical question for a company buying a building to occupy: what shape is this building in, and what will it cost to put right? The written result is usually called a property condition report. Maynard Nexsen compares a building inspection to the home inspection you may have had on a house, and notes that these inspections are typically performed by engineering firms, with particular focus on items that have a known useful life, such as the HVAC system and the roof.

The common reference point is ASTM E2018, the Standard Guide for Property Condition Assessments. ASTM's own description matters here. The guide is for use on a voluntary basis, and it says that varying levels of assessment, both more and less comprehensive, may suit a given user. In plain terms, the standard is a baseline and not a law. You and your consultant decide the scope, based on what you need to learn and how much risk you can accept.

That makes the engagement letter worth reading. An owner-user who plans to stay for many years and carry every repair has different questions from a buyer planning a quick resale. Say so at the start, and describe how you intend to use the building, especially if your use will load the structure, power or ventilation differently from the current occupant.

One useful public summary of the current edition, ASTM E2018-24, is the scope appendix published by the Cariboo Regional District, a local government in British Columbia, which describes itself as a plain-language summary that gives way to the standard itself. It lists the systems a consultant is expected to observe where present and accessible:

• Site: drainage, access drives, parking, paving, sidewalks and loading docks.
• Structure: foundations and slabs where accessible, framing, columns and load-bearing walls.
• Roofing: coverings and membranes, flashings, penetrations, rooftop equipment, drainage, and evidence of leakage or ponding.
• Exterior: wall systems, windows, sealants, doors, canopies and exterior stairs.
• Plumbing: water supply, sanitary and storm drainage, fixtures and hot water.
• Heating, cooling and ventilation: equipment, distribution, and apparent age, condition and maintenance level.
• Electrical: service and distribution equipment, emergency power where present, and lighting.
• Elevators and escalators: visible components and reported maintenance arrangements.
• Life safety: fire alarm and suppression systems, and available inspection or testing records.
• Interiors: representative common areas and typical spaces.

The same summary says the consultant also looks for records where they can reasonably be obtained, including certificates of occupancy, recorded building or fire code violations, maintenance records, warranties, repair history and prior assessment reports, and may interview owners, managers or maintenance staff. Information from those people is not independently verified.

Most disappointment with a PCA comes from assuming it did more than it did. Per the summary above, a baseline assessment is not technically exhaustive, does not identify every condition that may exist, does not guarantee future performance or service life, and does not determine regulatory or code compliance. The consultant is not required to dismantle, test, measure, calculate or probe, and is not required to see every identical unit. Representative observations can be extrapolated to similar equipment.

The summary also places several subjects outside the baseline: environmental or hazardous materials assessments, accessibility compliance evaluations, concealed or latent conditions, and engineering services. Environmental review is its own workstream, usually starting with a Phase I. If a roof looks tired or a rooftop unit looks unreliable, the report may suggest further study, and that is a separate cost and a separate schedule.

ASTM also cautions that a report should be relied on only for the point in time it describes, and that reports are typically completed for the contracting parties. If your lender or an affiliate will rely on the report, ask for reliance to be extended by agreement rather than assuming it.

Ask the consultant to list what was not seen and why: roof areas with no access, locked rooms, units not inspected. The gaps are as useful as the findings.

The same summary describes opinions of cost as order-of-magnitude and budgetary, by line item where practicable, excluding routine maintenance and very small items, and grouped as immediate, short-term and, if included, long-term. These are opinions and not contractor bids. Treat them as a way to rank problems, then get real pricing on the items large enough to affect your decision.

Long-term reserve tables deserve a specific request. Engineering firm NV5, writing about the 2015 revision of the standard, explains that long-term cost and replacement reserve tables sit under additional scope considerations, while noting that most assessments include some level of long-term cost review. For an owner-user this may be the most valuable page in the report, because you, and not a landlord, will fund those replacements. Have it carried into your cost-of-ownership model year by year.

An assessment only creates leverage while you can still leave. Practitioners writing in the Michigan Bar Journal describe the usual practice: the deposit becomes non-refundable when the inspection or due diligence period ends, and buyer's counsel will want the option to terminate and recover the deposit if objections are not cured. Time the work accordingly.

1. Order the assessment as soon as the contract allows, so specialist follow-up still fits inside the due diligence period.
2. Walk the building with the consultant, and share how you will use it.
3. Read the draft report for items that change the decision, not only the largest numbers. Separate safety issues and active failures from aging that any buyer would expect.
4. Get specialist reports and contractor pricing for the two or three items that matter most.
5. Decide what you want: a lower price, a credit at closing, a repair by the seller before closing, an extension to finish testing, or termination.
6. Have your attorney document any change in a signed amendment before the period ends, and confirm whether a seller repair carries any warranty.

Keep the request tied to evidence. A short list of priced items with the report pages attached is harder to dismiss than a general complaint about condition. Also expect the seller to point out that the price already reflects the building's age, which is one reason to show what is failing now as distinct from what is simply old.

Tenant Advisory Group represents buyers and tenants, not sellers, and helps owner-users time these reports within the contract and turn the findings into a clear business request, with your attorney handling the contract language.

• ✓Who will walk the building, and who will review the report? What are their qualifications?
• ✓Will the work follow the current edition of ASTM E2018, and where does it deviate?
• ✓Will the report include a long-term reserve table, and over what period?
• ✓Will someone access the roof, and how many mechanical units will be observed?
• ✓Can the consultant review our intended use and any planned changes to the building?
• ✓Can my lender and my holding company rely on the report?
• ✓How soon can the draft arrive, given the date our due diligence period ends?