Covid 19 – Service charge reviews in tenanted properties

8 April 2020

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Our Property Management team are busy adapting to the challenge of trying to manage our clients’ buildings as best we can during the Covid 19 crisis within the government guidelines.

How is the Property Management team functioning during the lockdown?

The restrictions on travel, changes to tenants’ working patterns and cash flow concerns of both landlords and tenants have made this much more difficult and time consuming.  Fortunately, our investment in technology over recent years has meant that our management surveyors and accounts team can operate effectively from home, with site visits carried out only where essential. 

What’s happening with the provision of services in multi-let properties?

With so many businesses closed or working from home, many tenanted properties have been vacated or are manned by a skeleton staff.  Given the financial crisis we are in there is a need for landlords to review the services provided under service charge arrangements and achieve savings where possible. Contractual arrangements may, however, make this difficult in some areas.  It is already clear however that different tenants in multi-let buildings have different priorities and views on what work is “non-essential”.  As an example, some tenants want an increased cleaning regime in common areas due to the virus, while others want working hours and expenditure reduced or eliminated altogether.  Government advice on this is not always clear.

Is essential work still taking place?

Although non-essential work on our properties is generally being deferred, essential repairs, maintenance and services need to continue, and the more limited availability of contractors and supplies can make continuity of service more challenging.  Even arranging access for contractors can be difficult.  A reasonable approach will need to be taken by both landlords and tenants as the crisis continues. 

Will my service charge reduce?

Probably yes, although the extent of any reduction during the lockdown period would depend on the nature of the property, the services provided and whether the building is part occupied or totally vacant.  Where a building is totally vacant then, for example, cost reductions could be achieved by not running central plant such as boilers or air conditioning, and by suspending the cleaning contract. Utility bills are also likely to be lower.  If the building is part occupied, then the savings would naturally be far more limited.  Expenditure unlikely to reduce, even on a fully vacant building, will be on security and maintenance of essential items such as fire alarms.  The requirements of insurers’ empty buildings conditions will need to be complied with.

Consideration needs to be given to increased costs when normality resumes. For example, if a grounds maintenance contract has been suspended there may be a cost implication in bringing the site back to an acceptable standard.  A service charge budget covers a 12-month period and the impact of any of these savings on the total annual spend will ultimately depend on the duration of the current lockdown.

Any final advice you can offer?

Although not related to services charges, to assist with short-term cash flow we are passing on the advice of our business rates colleagues for companies that have vacated their premises to apply to their local authority for empty property relief from business rates.

This is a challenging time for landlords and tenants alike and we look forward to property management returning to the relatively predictable service it was until a few weeks ago!