Service Charge Consultancy

Service charge remains one of the most contentious costs of property occupation.

There are several factors that contribute to this and in most cases they are avoidable.

However, and fundamentally, there are conflicts between asset management and property management which in the UK, in particular, means that the financial risks of occupation sit primarily with occupiers. Whilst there is a long-term solution to this issue, there are a number of things that can be done to avoid disputes and ensure both lease compliance and value for money, and in so doing encourage transparency.

• Improve lease drafting. Leases are often inconsistent, lack definition and clarity of interpretation. They are often drafted without an understanding of the technical aspects of service delivery or property occupation.
• Given shorter lease terms (often combined with break options) there is a strong case for reserve or sinking funds. That said, they cannot be advocated until lease drafting is improved and the widespread issues of poor accounting are addressed.
• Property accounting must be improved. There are well reported problems with incorrect accrual accounting, conflicts between funds and service charge caps, a lack of governance associated with poorly defined funds, cap errors and supplier contract cost provisions not being applied correctly, to name but a few.
• Clear and transparent apportionment methods. Improved lease drafting should assist by clear prescriptive terms. The apportionment method should be subject to periodic review. Where the apportionment method is not clearly defined in a lease there should be an assessment of the benefit derived from the services with correct scheduling and allocation.
• Property management agreements that clearly define the management activities and associated costs which are properly recoverable as service charge. Management fees should be charged on a fixed basis and should only relate to the management and delivery of the services, and should be distinct from management function undertaken by building management staff. The total cost of management should be clearly stated and measurable.
• Improved procurement and supply chain management. The correct recovery of supplier costs particularly those which contain comprehensive or part comprehensive terms. Particular care is required with framework agreements and portfolio wide contracts.
• The transparent production of technical assessments supported by cost information. This is in the interests of both landlords and tenants particularly if contemplating improvements, ESG, or reserve/sinking fund collections.
• Compliance with the RICS Professional Standard on Service Charges in Commercial Property.