To the uninitiated, the world of Service Charge Management might seem a bit bewildering, as well as all the numbers involved, there’s a whole new language to learn! Here’s the Assure guide to some of the common Service Charge Management terminology you might come across when looking at your service charge liability.
Allocation – costs should be allocated to the relevant expenditure categories and apportioned to those who benefit from those services. The basis and method of apportionment should be fair and reasonable and ensure that individual occupiers contribute an appropriate share of the total service charge expenditure that reflects the availability, benefit, and use of services.
Apportionment Matrix – a table that clearly shows the basis and method of calculation and the total apportionment per schedule for each unit within the Scheme.
Commercialisation – part of a shopping centre income stream – Promotions, Concessions, Retail merchandising units, Coin operated machines, Vending, Advertising opportunities, Digital media, Sponsorship. Landlords should contribute a share of the profits from these activities back to the service charge budget.
Commission – a certain percentage of the insurance premium that is retained as compensation by insurance agents and brokers.
Depreciation Charge – the ‘cost’ to the owner representing the measure of the wearing out, consumption, or other reduction in life of an asset.
Forward Funding – an agreement whereby the Landlord funds the cost of works in the first instance and then recovers a percentage or all those costs from the occupiers through the service charge later.
Planned Preventative Maintenance (PPM) – Planned preventative maintenance (or Life Cycle Replacement Costs –LRC) is maintenance that keeps the fabric, facilities, plant and equipment of a building in satisfactory condition by providing for regular inspection and repair of failures, either before they occur or before they develop into major defects. PPM also helps to identify the point at which such items can reasonably be deemed to have reached the end of their economic life, when replacement or renewal may be necessary. PPM programmes are usually prepared in periods of between 5–10 years in advance and are reviewed and updated at frequent intervals.
Reconciliation – a full comparison of all service charge income demanded against all service charge expenditure (including accruals and prepayments) for a given service charge accounting period. This enables the calculation of any balancing charges and credits due.
Reserve Fund – fund formed to meet anticipated future costs of maintenance and upkeep in order to avoid fluctuations in the amount of service charge payable each year (for example, for external cleaning and redecorations).
Schedules – the allocation of service charge costs into separate parts to reflect the provision, usage, benefit or availability of services between occupiers.
Sinking Fund – fund formed by periodically setting aside money for the replacement of a wasting asset (for example, heating and air-conditioning plant and equipment, lifts, etc.)
Sweeper Clause – provisions designed to include charges which are not specified but which the Landlord might want to recover from time to time into the scope of the service charge clause.
Value for Money – good value for money is the most effective and efficient use of financial resources to achieve the intended outcomes. Value for money might not mean the lowest price.
Voids – the service charge share that is attributable to any vacant lettable units and is paid for by the Landlord.
WFA – weighted-floor area apportionment discounts the percentage the occupier pays over a certain size to reflect the benefit of the services provided. The floor area is divided into bands with a progressive discount and is a similar concept to the zoning of shops for rental purposes.
And if it all seems a bit confusing still, then one of our experienced Lease Expense Managers will be able to help you understand how your charge has been calculated. Contact us by completing the form below: