30 SEP 2019
Our mandatory professional statement – Service charges in commercial property - came into effect on 1 April 2019 with the aim of improving standards, fairness and transparency in the management of service charges and reducing the causes of disputes.
Joanna Crofts explains the benefits of the new rules for both tenants and landlords, what the global property consultancy has seen to-date, and outlines the changes that have become mandatory.
Mandatory guidance is in everyone’s interest. It has helped make service charges clear and transparent for all tenants, rather than just to those whose landlords followed the guidance as best practice.
For example, in the past, it wasn’t set in stone who should be responsible for paying for things like marketing events held in an office building or a shopping centre. Now there’s clear guidance that says the landlord should contribute 50% towards the cost of such events.
Another example is where a landlord has agreed a capped or fixed service charge as an incentive to secure a new tenant. The landlord must pay for any shortfall and not simply try to hide this and recover the shortfall from the other occupiers. The service charge matrix showing the basis for recovery of costs must be completely transparent and disclosed.
The change that has made the biggest impact for landlords are the mandatory, and much tighter, timescales for budgeting and settling service charge accounts. These must be reconciled annually.
Until now, unless the lease states otherwise, there was nothing stopping a landlord going back several years to recover costs owed. This can have a significant negative impact on a tenant’s cash flow. Similarly, if too much time elapses, a landlord risks losing their chance to recover money owed because a former occupier may have since become insolvent.
Service charges on different commercial buildings are now easier to compare too. So, if you’re looking for a property to buy or lease, this will help you make the right decision on which premises to choose, in relation to service charges.
Joanna Crofts is Head of the Knight Frank South Wales and South West Property Asset Management Team.
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