NovaLoca Blog

It’s like something out of a horror film – a lease can drive up your costs to frightening levels, completely beyond your control.

On Thursday this week I attended the Commercial Property Service Charge Seminar at Offices 09, keen to gain a better understanding of the issues facing occupiers. I soon realised that this is an essential topic – avoid it at your peril!

A landlord’s business is the provision of space for occupation by other businesses, often in multi-occupier premises. So, should the landlord not bear the risks (including the uncertain costs) of that provision? Well, look at it this way – would a restaurant’s customer agree to pay for a meal provided as and when it suits the restaurant, at a standard and price to be defined, after the food and drink is delivered?

This was the essence of the first slide introduced by Vivien King of Bond Pearce, and it identifies the unique position of service charges. Read on for details of how to escape a service charge nightmare!

Here are some rather uncomfortable facts:

• Service charges cost over £4bn a year in England and Wales.
• If you take out a lease you can expect to add roughly 10% to your rent bill to cover your service charge.
• Charges can vary widely from year to year – it is quite common for the charge in some years to shoot up to four times higher than charges for other years.
• You will not necessarily know about charges in advance (the Loughborough Report 2009* found that in the past two years only 21% of landlords had delivered budgets one month before the start of the financial year).
• You may not have in writing an agreed level of service that you can expect to be covered by your fees – in fact you may not have any clear idea of how they are arrived at.
• Previous Loughborough Reports have found service charges both higher than necessary and inexplicably variable.
• Sinking funds are often not well managed or accounted for, and in the case of shorter-term leases they really may not be appropriate.

It is worth remembering that in the current climate, in which occupiers can have the upper hand in negotiations, anyone entering a lease should negotiate and make sure they very clearly understand what they are signing up to. There are many options to consider, including fixed service charges, caps on service charges, all-inclusive rents and agreements from landlords to comply with the RICS guidelines. Remember that once the lease agreement is signed, depending on its terms you may have no right to withhold payment, even if you think that the payments are unfair. As long as they are in line with your lease arrangement, charges may well be deemed to be just (and therefore upheld in a court of law) even if they don’t seem fair (a great point made by Graham Chase of Chase & Partners & RICS). A lawyer will not necessarily point out the implications of your service charge clause, so question it yourself or ask an expert. The Loughborough Report 2009 found that the median service charge is £5.29 per sq ft, so you are advised to monitor service charges if the total is above this, and to investigate each item if the total is above £7.80 per sq ft.

With regard to legislation, there is a clear distinction between the residential sector, where current legislation covers consultation with tenants; written estimates for proposed work; and ‘reasonable’ costs, standards and timescales for payment demands; and the commercial sector, where no such legislation exists. Given the variable nature of commercial property, legislation may not be the answer in this sector. There are guidelines for RICS members, to which many adhere, even if they may not be happy to put it in their contracts, but a lot of property professionals are not RICS members. While the arguments continue as to who should be responsible for enforcing compliance, ultimately any lease agreement has to be signed by two parties. The more a service charge is questioned, the more this will expose unscrupulous landlords – and those that are already compliant and fair will have a chance to shine.

Service charge disputes are not just a problem for small companies. I spoke to a large occupier in dispute with their landlord over a charge of £1.4m. The occupier claims that services have been cut back, but service charges have not been reduced. Although the occupier had a service charge cap in place, the landlord is charging at the upper limit without justification, the occupier argues. The company concerned would like to have more of a say about contractors and potentially take on managing some services itself.

by Miranda Munn

For more details, full reports or expert advice you can talk to Property Solutions, sponsors of the event.

*The Loughborough Report 2009: Commercial Property Service Charges, by Dr John Calvert, published by Loughborough University Enterprises Ltd.

Events of this kind are always an enjoyable experience: great venue, food, hospitality and of course a day out of the office! No matter what the occasion, every effort is made to ensure the NovaLoca.com stand is on show, and this event was no exception.

Last year saw a team of two NovaLoca cars heading to the Celtic Manor Resort near Newport for two nights (and of course two days!) of Offices 08. It was not such a long road trip for us this time but still, the Royal Lancaster Hotel in London is hardly lacking in grandeur – and the setting meant it was easy for us to attend the event and return home the same day.

Miranda had headed to the Lancaster the previous day to set things up as NovaLoca took up its position on Stand D1. Offices 09 had arrived with the slogan: “Two Events, One Day: Occupiers Equal Value”.

As you can imagine, two events in one day meant a bumper conference programme. With registration opening at 8am and the Office Development Awards 2009 commencing 12 hours later, delegates had a busy day in prospect. A wealth of speakers and a selection of break-out sessions kept attendees entertained, and as a result the exhibition hall was relatively quiet until the refreshment breaks.

I joined Miranda mid-morning, with the day well under way. The morning refreshments had just ended so the hall remained quiet until mouthwatering smells began to emerge from the kitchens just before 1pm. Sure enough the hall began to fill up, and an excellent lunch was enjoyed by all in a relaxed atmosphere. There then followed a short networking break before the afternoon sessions began at 2pm.

The afternoon remained relatively quiet in the exhibition hall, but the Chairman’s closing remarks at 5:30pm signalled the end of the conference programme and gave way to the final and main networking of the day, with many stands in the exhibition hall offering drinks and nibbles.

Having offered an interesting mix of M&Ms and Skittles throughout the day, Stand D1 now moved onto a more refined offering of canapés, with alcoholic and non-alcoholic beverages and music to match. The reception was quieter than hoped overall, but the Property Week guys did their best to help out! Before long an announcement indicated the start of the awards upstairs in the Nine Kings Suite. This marked the end of my day and the beginning of Miranda’s evening.

Having taken the stand down, I headed for home while Miranda went on to enjoy the drinks reception, award ceremony and evening entertainment, which carried on into the early hours.

NovaLoca is designed very much with the occupier in mind, so if you missed us at Offices 09 remember you need look no further than NovaLoca for all your office space requirements. Look out for the NovaLoca stand at the next commercial property event!

If you have any commercial property to let or for sale, just visit NovaLoca.com or call one of the team on 01767 316 577 to find out how NovaLoca can work for you.

Chris Tembey

The Planning for Prosperity conference on October 15^th 2009, held at the fantastic Grange City venue right by London Bridge, was attended by close to 100 delegates throughout the day. I arrived to man the NovaLoca stand just in time to enjoy the excellent hot food after the last of the morning sessions!

The agenda for the day was: “Planning to ensure delivery, enhance viability and encourage economic recovery” and the conference produced an eclectic mix of exciting and innovative ideas, being discussed by speakers from all parts of the industry.

I managed to take in a couple of the afternoon sessions with approximately 50 others. Some interesting points were made, not least that the national target of building 3 million homes in 2009 is not at present being met.

Of interest to me locally was the expressed hope that GlaxoSmithKline would stay in Stevenage (just down the A1 from our offices in Biggleswade) rather than re-locate across the pond as others had done, in this particular case to Boston, Massachusetts.

The overall feeling was that we should be looking after parts of the country that provide finance to our economy. This makes sense, although in this difficult economic period I suspect there is more to it than simply looking after people, but it’s a good place to start.

Working in the industry I’ve heard about MIPIM (a marketplace for the international property trade) and of course often suggest to Miranda that it is really an event that we should be part of (the photos of Cannes and this beautiful section of the French Riviera will explain why). Comments made at the conference suggested that it wasn’t worth the trip this year, as there wouldn’t be many – if any – deals done. From a purely selfish point of view I wouldn’t have minded going anyway!

At this time of uncertainty it was refreshing to hear people taking a positive outlook and looking to the future with hope. We need to stick together, supporting each other through the current market and seeing it improve in the future. To that end we encourage all those with property and all those looking for property – now or in the future – to look no further than NovaLoca.com.

Whether you are looking for a warehouse space to let or if you need to register an account to market a property, please visit NovaLoca.com or call one of our friendly team on 01767 313 380 for more information.

Live long and prosper! Chris Tembey

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