With deferral & subsequent carrying forward of postponed works coupled with delays in certifying service charge there are instances where service charges levied on-account can effectively mean charges for the same work on numerous occasions until reconciled.
Service charge budgets and reconciled accounts are not being issued in line with the timescales set out in the RICS Professional Statement and things seem to be deteriorating. As with many things, this has not been helped by Covid-19, with interruptions in the process for different reasons. However, as those delays increase, the continual carrying forward of deferred works becomes far more questionable and impactful.
To demonstrate the point, we set out below summary details of a recent case we dealt with, relating to a shopping centre with a 31 December Year End.
2019: Budgeted major works of approximately £400,000. The works were not undertaken and so the sum was carried forward and included in the following years budget.
2020: Deferred works planned but following the impact of Covid they were postponed to 2021.
2021: The Budget has arrived and the works are included for the third year & we still have not had the refund from the 2019 underspend.
Clearly, in the current circumstances (or any circumstances), including the same amount for works that are continually deferred is not helpful to say the least. Especially, with increasing delays in certification. It then becomes a significant cashflow issue that might complicate the reconciliation of payments when the moratorium comes to an end. On a similar ‘cash retention’ theme, in the event that works are neither undertaken nor costs incurred, the cost should not be accrued. Again, this is contrary to the provisions of the RICS Professional Statement.
By reconciling in good time and eliminating incorrect accruals, there is no loss to the owner and the occupiers cash position (or even what they have to show as a charge in their accounts – accepting that not all payments have been made in full recently) is maintained at an appropriate level.