We advise a variety of Landlord’s and Tenant’s in respect of the technical aspects of Service Charge matters. A Service Charge is an arrangement established in many multi-occupied buildings where a Landlord controls common parts and implements repairs, maintenance and general house-keeping on behalf of all the Tenants.
Many Tenants are under an Internal Repairing Lease where they are responsible for the internal parts of their unit only and they contribute jointly to the cost of maintaining all common parts. The common parts typically include the roof, external elevations, central corridors or shopping malls and any central plant which serves the whole building. We work with a number of specialist advisors in respect of the management of a service charge and our Building Consultancy Team offers specific advice on the physical work required.
SERVICE CHARGE BUDGET
When acting for a Landlord we would often undertake a Condition Survey of a property to establish its condition, identify backlog maintenance and provide a detailed costs report on the works needed. This is often part of an Acquisition Survey when buying a new investment.
The findings are then taken forward into the preparation of a Planned Maintenance Programme or Planned Preventative Maintenance Plan This programme is usually for either 5 or 10 years and allows works to be planned and budgeted on a phased basis. This not only allows budgeting of expenditure, but also allows the service charge budget to be predicted over future years and avoid a dispute with the Tenants.
In some cases, Tenants could be under slightly differing Leases and each may have a different proportion to contribute. By preparing a detailed Planned Maintenance Programme alongside the service charge managed by the clients Managing Agents any shortfall works can be identified and budgeted and future conflicts avoided.
SERVICE CHARGE ADVICE TO TENANTS
We are regularly asked by our clients to provide specific advice on individual claims made by their Landlords on items they consider unreasonable within current works and future service charge budgets. These often relate to larger capital expenditure such as roof replacement, mall refurbishment and external re-cladding. A Landlord is often able to claim for the repair and decoration of a building however they sometimes try and enhance its appearance or improve its lifespan by implementing works to a higher standard or to an improved appearance. If you receive a claim from your Landlord which is considered to be unreasonable and includes works which you think go beyond the terms of your Lease then we can help. We would review the terms of your Lease, assess whether the basis of future service charge expenditure is reasonable and if needed act on your behalf in negotiation of the works with the Landlord.
We find that many Landlords will try and plan service charge expenditure around anchor Tenants and we have successfully contested Landlords proposals to implement significant works the year before a Lease ends. A Landlord may try to improve the overall standard of the property to attract future Tenants.
CAN A LANDLORD INCLUDE SERVICE CHARGE WORKS IN DILAPIDATIONS?
The basic principal is that a Landlord cannot include service charge items within a Dilapidations claim. For example, if a Tenant was liable for the internal parts only then as part of a Terminal Dilapidations claim the Landlord could not include items for the roof which would be undertaken the following year under the service charge. We sometimes find the Landlord may include an item within a Dilapidations Claim for say 50% of the roof on the basis that they are planning to implement the work the following year.
There may however be an acceptable claim for any ongoing service charge expenditure which is on a planned basis, if the Landlord can prove a Tenant is liable for costs such as loss of rent, loss of rates etc whilst dilapidation works are being tendered or implemented. It is therefore important to consider the overall service charge when coming towards the end of a Lease to establish whether a Landlord may try and include more substantial charge works in the last year of the term and whether they would have a valid claim for planned service charge expenditure as part of their other costs.
IS THERE ANY GUIDANCE TO FOLLOW FOR SERVICE CHARGES?
There is a variety of guidance provided which is helpful to both Landlords and Tenants in the management of a service charge. The main documentation we would refer to is the RICS Code of Practice for service charges in commercial property, Third Edition