Surveying the service charge
Published: 20 February, 2014
New research from service charge consultancy Property Solutions shows that shopping centre landlords and managing agents are still struggling to achieve full compliance with the Code of Practice on Service Charges.
The code sets out nine different best practice requirements for the administration of service charges, and Property Solutions’ SCOR for Retail 2013 survey found that while 97 per cent of respondents were clear on the basis of apportionment of service charges, only 23 per cent disclosed the accounting principles underlying their service charge accounts.
The vast majority – 87 per cent of centres surveyed – now operate under a fixed management fee as stipulated by the code, up 16 per cent in a year. But timely delivery of documents remains an issue with less than 56 per cent compliance.
Other main conclusions of the survey were that service charges have remained flat for the past three years as the median service charge cost for the total sample was £5.24 per sq ft, the same level as in 2011 and 2012. The upper quartile was £7.07 per sq ft and above, while the lower quartile was £4.10 per sq ft and below.
For open-air centres the median service charge was £4.08 per sq ft, while for covered or part-covered centres it was £5.59 per sq ft. The difference is largely made up of increased cleaning costs (£1.04 per sq ft in covered centres against 80p per sq ft in open-air centres) higher electricity bills (41p per sq ft for covered centres against 20p per sq ft for open–air) and increased M&E costs (48p per sq ft for covered centres against 19p per sq ft in open-air centres)
Significantly, the survey did not show any apparent correlation between building size and service charge costs. The six mega-malls surveyed (those of 1.7m sq ft and upwards) had service charges ranging from just over £2 to just over £10 per sq ft. And the smallest malls (those of 200,000 sq ft and under) had service charges ranging from just over £2 to just under £12 per sq ft.
The management fee in pounds per sq ft does not appear to be higher at larger properties although Property Solutions did observe that the management fee slightly increases as the total service charge cost per sq ft goes up.
And there seems to be no apparent correlation between the age of the property and the total service charge cost: the oldest property in the survey had a service charge of just over £4 per sq ft while the youngest had a charge of just under £10 per sq ft although the second-youngest was just £4 per sq ft and the second-oldest over £10 per sq ft.
The difference between median service charge costs for London properties and centres located in other parts of the country is just over £2.00 per sq ft
SCOR for Retail 2013 presents analysis of service charge costs and compliance with the Code using the actual service charge documents supplied to occupiers. As a result, it provides an unbiased and neutral account of service charge practices within the industry with a wide variety of sample buildings. Landlords taking part included British Land, Land Securities, Capital & Regional, HBOS, HSBC, RBS and Lloyds Banking Group.
In total, the survey covered 126 retail properties owned by 87 unique landlords and managed by 44 different managing entities. Their combined floorspace was over 61m sq ft and the combined management cost was £371,685,250.