News and Blogs

14 December 2023
Why service charges are so important to multi-tenanted investments

By Simon Preston, Director of commercial property management

Garness Jones have been specialising in managing service charge agreements on behalf of landlords with multi-occupied developments for over 35 years.

Service charges are fees collected from commercial tenants on multi-occupancy sites to cover the costs associated with managing common areas and shared facilities. 

The instructions on how a service charge is to be managed is commonly found in leases and are typically additional charges to rent, and therefore this is an essential area for landlords to get right if lengthy disputes are to be avoided.

In our work our team has taken over the management of many commercial property developments across Yorkshire and Lincolnshire where the service charge agreements have either been inconsistent, or poorly planned, budgeted and communicated. 

In some cases, service charge agreements have absent altogether, when essentially required. This can lead to dilapidated common services, with costly landlord contributions then required.

Getting service charge agreements right on any development – whether a new build or an existing property with multiple tenants – is simply a must.

The benefits of cost effective service charge management

An effective service charge agreement will ensure a landlord is not only supporting their tenants with pro-active management and maintenance of common areas, but will also protect their investment for the future by ensuring appropriate reinvestment when required.

At Garness Jones, we have decades of experience in this area, and know the importance of establishing thoroughly detailed, planned and budgeted service charge agreements, which importantly are covered and agreed in the terms of each individual property lease.

If a service charge agreement is established, and communicated in a clear and transparent manner to tenants, disputes can be avoided and positive relationships maintained.

All involved in a multi-occupancy development are stakeholders in the site – and that is a good way explain why service charges are so important to all.

Offering value for money for tenants as part of a service charge is key. At Garness Jones, we ensure we identify every possible cost saving and efficiency measures possible, from reviewing, for example, all deals with contractors hired to carry out work on site and putting work out to tender, to reviewing how often those roles are carried out.

Establishing a budget which covers immediate and long term needs

Establishing a budget which covers both immediate and long-term needs is essential.

It must cover the day to day operational costs such as cleaning, security, maintenance, utilities for common areas, landscaping, and general property management, but also take into account longer term requirements, such as the repairs, maintenance and servicing which need to be carried out to meet compliance laws, and any major investments required.

There also needs to be a surplus generated to cover any unexpected costs (which happens with most properties at some time).

Our clients are provided with detailed annual budgets which outline all the anticipated costs for the current year, based on historical data, the costs of all service providers and all contractual obligations with contractors.

The methodology for the level of service contributions required by each tenant are also specifically covered in lease agreements, whether they be based on the size of leased space (pro-rata), or a fixed fee per square foot.

In recent times at Garness Jones we have also invested heavily into our property management software to ensure transparency in all we do, keeping landlords informed at all times over the management of their service charge and property.

By following the RICS code of Service Charges in Commercial Property, we can tailor any service charge schedule to any property or estate. Contact our team today on 01482 564564