Tenants believe service charges should be lower, Landlords say they are at the right level to service the building……and so the debate goes on!
How do we address that ‘conflict’ as we emerge from this painful period when many things will need to be re-assessed or re-based?
Residential service charges are governed by statue with more cost-effective means to question (and challenge) service costs and to put forward counter quotes for major works etc. Going a step further, a group of Tenants can initiate Right to Manage (RTM), taking on responsibility for services or appointing their preferred managing agent. The RICS Professional Statement for Commercial Property does not go anywhere near as far and the worthwhile terms are mostly discretionary. Also, not all Landlords are members of the RICS. So perhaps embedding a new set of statutory terms in an updated Landlord and Tenant Act might be the way forward. There could be many other things that could also be usefully reviewed and updated as part of that.
An alternative, workable and commercial solution can be found in Business Parks, where the plot owners (or the tenants of the plot) become shareholders in a separate management company that run the services. The level and extent of services and the management of the ‘scheme’ can be put to a vote and this is largely controlled by the beneficiary of the services as opposed to the provider.
This concept is not that far removed from a Tenants Association in a Shopping Centre. These can be incorporated and are subject to a voting system with shares held by tenants in the scheme. However, the services are generally limited to marketing……couldn’t this be extended to other recurring services? Then the Association could make their decision on all recurring costs.
There have been real efforts at consultation and some others that pay lip service to it. In most cases, it hasn’t improved the situation because the proposals are supported and justified in a defensive way rather than with an open mind for change. Even with consultation, there is an issue because the Landlord/Managing Agent has great knowledge of the scheme and there is a time/cost issue related to the Tenant getting a level of understanding sufficient to offer up valuable suggestions. This can be a problem with short term interventions and comments.
So, Unresolved Challenge 1:
Involving the tenant group in decision making – it’s not working (well enough, in many cases) in the commercial property arena.
Would some elements of the residential statue work for Commercial?
For example, there is a requirement to formally consult on major works, s.20. This means Tenants get time to review the proposals (with reasonable time) and comment on them as well as a chance to put forward suggested contractors. Why not, if the only objective is to get best value?
The need to agree and collaborate on value for money on service costs becomes more relevant, particularly as the Landlord will now bear an increased share of costs through voids and shortfalls.
There are basic service cost efficiencies that have not always been taken up and that remains so e.g. multi skilling staff for dual purposes….manpower represents 50% of service charge. Including the Tenants in the decision making process will only encourage moves to implement all such initiatives. There are also new opportunities………
Unresolved Challenge 2:
An industry slow to re-act and change……..this is the new world with BIG DATA and technology based solutions
We capture lots of Data through our Verivi Cost Management system. It covers service costs, line by line and the database includes over 2500 Buildings/Schemes. From this we issue a high level bench marking summary, the Assure Index. This highlights massive variances for similar property types. Through detailed comparative analysis (as like for like as you can get) we can identify the significant issues that require attention. Access to this level of ‘live’ service charge data was not available previously. We offer ‘Traffic Light’ reports highlighting where a scheme sits relative to comparable sites, for each service cost.
Then there are technological solutions that potentially allow management of remote workforces or monitoring of security in different ways, rather than high levels of manpower. We have sat with Landlords discussing their initiatives but the level of adoption (of these new solutions) doesn’t seem great. Perhaps it’s a nervousness for change and that’s understood when it comes to security but they could be fantastic alternative solutions.
Is it time to revisit Central Purchasing across Landlord (and Tenant?) groups – lets call this BuyCo. For example, utilities brokers advise that electricity consumption at levels of £400k per annum can get the best rates in the market. At lower levels, the best rates might not be achieved. So many Owners have bills below £400k and don’t get the best rates. By collective purchasing through BuyCo, many more could get better rates. This is not a new idea but perhaps web based buying solutions for a Landlord collective could really open this up.
Scheme Portals could be further developed to hold all service charge budgets along with service contracts with a chat box for suggestions on changes to specifications or an alternative provider.
So, we need to think about a re-basing of service charges. There has never been a better time for such a re-assessment.
In any event, lets not lose sight of the fact that the greatest gains in the short term will be made by a razor sharp focus on service costs. What is absolutely necessary for the safe, operating environment. That’s the starting point……..and at the same time I am sure many Tenants will be pressing for all inclusive rents and service charge caps to protect their personal position, even more so if the #ServiceCharge problem is not addressed.