'Urgent action' needed to regulate service charges

2 February 2006
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02 February 2006 | Anusha Bradley

Commercial landlords must adhere to management standards for service charges to curb "uncontrollable" variable costs.

The call came last week from the Royal Institute of Chartered Surveyors (RICS). Paul Bagust, assistant director, said it was "looking at ways to bind people" to the existing voluntary guidelines.

Service charges - fees for maintenance, security and cleaning of communal office space - is a £3.5 billion-a-year market, according to a Loughborough University study. Variable costs make up £942 million of this figure.

David Barrass, managing director of service charge consultancy Property Solutions, which commissioned the report, said "urgent action" was needed to regulate the industry.

He said it was best practice management for landlords to send quotes for charges in advance, then reconcile invoices and charge or refund tenants the difference. But many firms receive bills late and in some cases do not receive the quote for estimated costs for the forthcoming year until it is over.

This can result in cash-flow problems, particularly for smaller firms.

The Loughborough study, which looked at charges for 161 buildings over a five-year period, found none of the commercial tenants were sent budgets in advance, 45 per cent arrived after the start of the financial year and at least 10 per cent arrived more than a year late.

Barrass said charges for firms with 100,000 square feet of office space can be up to £1 million a year and the absence of information was a real problem. "If you had a business turning over £1 million a year you would expect monthly management reports," he said.

However, Bagust said that monthly reports would send charges "through the roof".


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