As part of our initial portfolio review for an office occupier, we identified that the agent was over-budgeting, year after year and yet balancing credits were not issued.  Instead, significant sums were being retained for unspecified future projects.

The lease terms set out the certification process and mechanism for balancing debits/credits to be applied without delay. However, Reserve Funds were recoverable and the agent put that forward as justification for their approach.

The RICS professional statement clarifies how such funds, which are viewed as occupier’s money for specific purposes and designed to be short-term in nature, should be maintained and communicated.

On that basis, we continued our challenge.  Initially, there was suggestion that Tenants agreed to the retention for future projects.  With no record of the agreement, we requested the history of all debits/credits to/from the reserve account as well as details of the exceptional works that were planned. The agent was unable to provide details of the Landlord’s exceptional works but confirmed the balance of the fund at £68,000.

Due to our clients imminent lease expiry and the fact that the agent could not justify the retention of tenant funds,  the Landlord agreed to refund the balance of the reserve as well as reducing the on-account demands, eliminating the final years reserve, all resulting in a total saving of £38,000.

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