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Exclusive: 10 Golden Rules on reviewing a service charge

Author : James Smith

19 September 2013

James Smith, MD of Service Charge Associates, presents 10 Golden Rules on reviewing a service charge

No 1 – Respect
People deal with and respond to conflict and contentions in differing ways depending on personality and objectives. Many of our tenant clients value the relationships with their landlord counterparts and would not wish their service charges to be challenged aggressively or to disrespect their appointed advisors. It requires huge amounts of tact for a critical challenge to be well received.

No 2 – The devil is in the detail
Many service charges appear fine and well managed on the face of it. Tenants rarely challenge a service charge when a balancing credit is issued at the end of a service charge year (due to a carefully set or well managed budget). The underlying issues of inappropriate cost recovery are often only detected when delving deeper in the detail of the lease, the service contracts and the individual invoices making up the service charge costs.

No 3 – Timeliness is everything
Timing a service charge challenge can be crucial to its success. Many leases prescribe that service charge certificates can only be challenged within a certain period after being received by the tenant otherwise they are deemed to be conclusive (save for manifest error). Also, reviewing landlord’s capital works proposals and recording the condition of building fabric or M&E plant prior to it being replaced or refurbished is critical to ensuring the expenditure is appropriate.

No 4 - Knowing your landlord
Undertaking a credit check on and reviewing your landlord’s company’sfinancial accounts to better understand their financial capacity can add a whole different perspective on the landlord’s ability to absorb irrecoverable costs.

No 5 – Paying the rent
Service charges are usually reserved as rent, meaning that withholding payment by set-off or deduction is precluded. Being in breach of the payment provisions set out in the lease should only be undertaken as a last resort and in consultation with professional advisors.

No 6 – Communication is key
Communication and transparency are fundamental elements of an effective service charge both from those managing buildings and those occupying them or reviewing expenditure. Setting expectations and agreeing service standards avoids unnecessary contentions and prevents distrust.

No 7 – Keeping tenure in perspective
Keeping in mind the lease length, breaks, review dates and the likely intention to stay or vacate the premises at lease end will determine the appropriate stance to take on key issues.
No 8 – Solutions often lead to success
When challenging management practices, expenditure decisions or poor service standards, it makes a significant difference to propose workable solutions. The direct comparison between the existing and the proposed helps to appraise the benefits and cost implications.

No 9 – Working with others
Most services and service charges are shared with other occupiers. Discussions with counterparts in neighbouring demises can often help to define workable solutions to contentious issues. Establishing a commonality of contentions is powerfully persuasive, especially if in doing so a majority representation is formed.

No 10 - Getting the right advice
The causes of many service charge disputes originate with the landlord receiving inappropriate advice from professionals. It often requires expert advice to unlock this situation. Service Charge Associates provide specialisttechnical advice to commercial landlords and tenants.


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