Our client occupies 49,000 sqft in a recently redeveloped office building of 69,000 sqft under a single lease beginning in 2017 for a term of twenty years.
The reconciled accounts for the service charge year ending 31 March 2019 were received, accompanied by a balancing demand of £368,000. Our client had received no prior notification from the managing agent regarding the size of the balancing demand.
The budget for the year was set at circa £583,000, but reconciled expenditure came to £1,060,000, an overspend of 82%. A new budget (for the year ending 31-03-2020) had been received and was circa £748,000, a material increase, but still short of 2018-19 expenditure.
Assure requested the year’s transaction listing from the managing agent for further investigation. This typically includes all payments made to suppliers and various ‘accounting’ entries, such as accruals and transfers.
As the building had been sold part way through the year and the managing agent changed, the analysis was more complex than usual. Before they could be analysed, two different formats of transaction listing had to be integrated.
Copy invoices for overspent cost categories were requested from the managing agent after an initial review. As the process continued, it became evident that certain costs that might be excluded by the terms of the lease were included in the service charge.
Like many commercial leases, our client’s lease excluded costs associated with the initial development and fitting out of the building, and latent defects. Transaction items in the listing included enhanced dosing of chilled water and additions to the access control system.
As a result of further investigation, the dosing system provided as part of the redevelopment was not unfit for purpose. Enhanced dosing was necessary whilst the issue was investigated, and a new system designed and installed.
Assure successfully argued that these costs were not recoverable under the terms of our clients’ lease. The managing agent revised the balancing demand, resulting in a saving of over £91,000 to our client.
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