‘My Service Charge is too High’ - Commercial Properties
‘That’s it, I’m going to write a strongly worded letter to my landlord’s agent to complain about the exorbitant level of service charge at our property. The central heating never works, the cleaners seem to get paid far too much for a service that’s non-existent and why am I paying for the lift when our office is on the ground floor?!
This is a scenario many commercial tenants have found themselves in and as someone who has experienced all aspects of management surveying throughout my career, it is something I can genuinely sympathise with. The issue always seems to be that tenants are asked to hand over money, ordinarily in advance, only to find that they then have little or no control over how it is spent.
But why is there this mistrust? As with any well-regulated or controlled industry, there are still some bandits out there, but that’s rare. Most reputable firms want to offer a decent service where issues are dealt with quickly and occupiers get good value for money for the services provided. I don’t think anyone really wants conflict, so how is it best to discuss a very emotive issue such as service charges with your landlord or his agent?
So, you’ve decided to take a breath and not send an angry letter after all, but to take stock and take a rational approach. Here’s where I'd recommend you start;
1. Check your lease
It may sound obvious but the first thing to do is to check the service charge provisions in your lease. In most modern leases the basis of the charge is normally set out towards the beginning of the document with the cost centres normally defined towards the end, often in a separate schedule. As I mentioned in a previous article this is not always the case! They are however generally very easy to find and the definitions straightforward to read.
You may find a gem without any need to refer to complicated case law. It may well be you are being charged for something that the lease does not provide for. A recent example I came across was where a ground floor retail unit was being charged for numerous items for the offices above when in fact their only liability was for a shared fire alarm system and shared air conditioning. Sometimes it may be more obvious that a specific cost centre has been excluded due to the location or unusual nature of your demise. If you find something like this, write to your landlord pointing out the clause and await their response.
2. Discuss the budget
Most budgets for the forthcoming financial year are set well in advance of the issuing of new demands. I know from experience that most management surveyors want to get as close as possible to the final amount charged over the year. No one wants a balance or for that matter a credit at year-end.
Rather than save your fury until the year end, why not have a civilized conversation at the start of the year and discuss the items in the budget? There may be notes explaining why an increase or decrease has been applied and perhaps this is where issues over levels of cost and service can be raised. At the end of the day, the landlord or his agents visit properties only periodically and if you or he are not getting value for money they may well be delighted you have bought it to their attention.
It’s also worth bearing in mind that good practice and RICS guidance dictate that contracts are reviewed on a regular basis and firms should have a procurement process in place. That’s not to say every five minutes a new contract is sorted and the lowest price wins. Service compared to cost are key so that the service suits the expectations and affordability of the building and its occupiers.
In the next of this series of articles, I’ll try and share a few ideas that I've found may make negotiations a little less fraught and may ultimately improve the relationship with your landlord. I must stress though that my thoughts are by no means a blueprint to avoid conflict and possibly arbitration, but more a way of mitigating the possibility of such action occurring.
