Are you paying too much for your service charges?
Service charges account for a significant proportion of total operating costs for most office occupiers – but tenants often overlook them when negotiating a lease. Lambert Smith Hampton points out that tenants tend to focus heavily on rent payable but “almost sign a blank cheque for their service charge liabilities”.
The firm has published a guide to checking and challenging your service charge – it recommends that you check to make sure charges are reasonable, that you are not paying to upgrade your landlord’s premises, you have enough information to budget wisely, and that your landlord is adhering to the RICS Service Charge Code of Practice.
To help you identify opportunities to save costs, Lambert Smith Hampton says it is important to recognise the following common scenarios: Is there vacant space? Has your service charge liability or insurance premium increased? Has your landlord got into financial difficulties – or even gone into administration? And do you know about any recent refurbishment or environmental upgrades to the property?
The RICS Code recommends that tenants receive a budget one month before the service charge year begins; and a service charge certificate within four months of the year-end. The budget and certified accounts should include appropriate explanations; management fees should not be based on a percentage of expenditure; and the tenant should be advised if costs rise by more than 2% above the budget at any point in the year.
