Service Charge Report

SERVICE CHARGES An opportunity for commercial property occupiers to cut costs and save money INTRODUCTION As part of our day‐to‐day professional work dealing with the cost of service charges, we often come across a wide range of errors ranging from straightforward mathematical mistakes, to more subtle issues, such as overcharging. In one extreme case, CRC North managed to negotiate a reduction of more than £100,000 on a service charge account where a landlord tried to get a whole roof replaced at the cost of the tenant. When we investigated further, we found out that the poor state of the roof was due to an inherent defect, which was the responsibility of the landlord. We carried out a sample survey of occupiers and have found that many service charge payers do not fully understand their obligations, or have the specialist knowledge to challenge their bills. Many simply assume that the service charge bill is correct. As we have seen time and time again, this is not always the case. That’s why we’re setting out a “plain English” summary of landlord and tenant’s obligations, common reasons for overcharging and how to challenge excessive service charge costs. OBLIGATION TO PAY Your obligations to pay should be set out in your lease, but could be buried in the complex arrangements of legal clauses. Unless you are familiar with the legal terminology, it may be difficult to understand exactly what they are. For example, you may be on a Full Repairing and Insuring (FRI) lease with very little responsibility for any service charge costs, or you may be on an Internal Repairing only lease, contributing only for common parts such as walls, roofs, etc. Retailers in shopping malls may be responsible for access roads, car park maintenance, security and in some instances, marketing. It’s important to establish which costs you are liable for from the outset. YOUR SHARE The second task is to establish how much of the total cost is your responsibility. This again will be buried in the clauses of your lease. It may be based on the area of your unit as a percentage of the total. Alternatively, it may be a straight split, i.e. there are 10 units and each occupier pays a tenth equal share. There can also be more complicated arrangements, where costs may be shared by some but not all tenants. CRC North recently encountered an office block where the ground floor did not pay for any of the lifts, but did pay extra security costs because they had staff working at night.