OPENNESS IS THE KEY TO AVOIDING SERVICE CHARGE DISPUTES

One of the biggest points of contention between commercial landlords and tenants are service charges – sometimes viewed as an ‘add-on extra’ to rents, and which can run into tens of thousands of pounds a year, writes Philip Morgan.

Perhaps inevitably, this has spawned a new industry of operators who claim to be able to help tenants challenge the level of service charges (for a commission, naturally).  So landlords now have to be watertight when it comes to accounting for the costs they are passing onto tenants.

Many occupiers underestimate the costs which fall on landlords to manage and maintain the common areas of a building.  The list is endless: maintaining car parks, upkeep of landscaped areas, cleaning of receptions, stairwell and other common areas, insurance, security and CCTV, power and heating, waste collection, servicing air conditioning.

And that is before the ever-growing compliance costs, such as testing emergency lighting, maintaining and certifying lifts, legionella testing, complying with fire regulations and even lightning protection.

There are some cynics who think that landlords use service charges to boost their rental returns, but in fact the service charge can only include the actual costs (including reasonable management charges), and not any element of profit.

It is important that landlords communicate the breadth of what is included in the service charge, but equally they need to be able to demonstrate that they have made every effort to fulfil these responsibilities in a way which offers the best value to tenants and which minimises the charge.

Using an agent to manage all of these services may incur a cost, but this is frequently offset by efficiencies in purchasing, expertise in negotiating, and reduced management time by the landlord themselves in managing the building.  A professional agent will ensure that the property is kept in good order, that tenants don’t have cause for complaints, and that the service charge will offer best value.

It can also be difficult for individual landlords to keep up with the ever-changing compliance requirements, whereas a professional agent is in a much better position to ensure the landlord doesn’t fall foul of the law.

The way to dissipate any contention about service charges is to be open: both about all of the things that are included in the charge, and by providing evidence that best value is being provided.  No tenant – and indeed no third party negotiator – can argue with that.