Service Charges in Commercial Property: measuring code compliance

Abstract

Purpose -The paper seeks to measure compliance by owners and their managing agents with the RICS Code of Practice Service Charges in Commercial Property, emphasising the financial reporting to tenants in multi-let financial services buildings. Design/methodology/approach -Data were hand collected by examining original source documents provided to commercial leaseholders as part of the service charge management process. This removes bias from relying on secondary respondents to provide data. Findings -The paper finds that requirements of the Code of Practice are not onerous, and whilst service charge management has improved, the majority of landlords still fail to achieve its requirements.Research limitations/implications -The sample represents approximately 6.2 per cent of multi-let office space in England and Wales 1998-2009. The content analysis method used requires some subjective interpretation by the researchers. Originality/value -Data are original to this research and the paper offers an analysis on the current standards of accounting practice by service charge managers.

Accounting for service charges in the UK commercial sector

“…The section on services is a single paragraph of two lines and that on management fees, one of three lines. The few words that made it into the document might appear vague but two interviewees recalled during this research (Eccles and Holt, 2009, for example) that “every one of those words was fought over by the competing vested interests sponsoring the guide” (Interviewee 1) and “the whole document was the product of much blood and tears” (Interviewee 2). One interviewee recalled that a member of the working party had commented “that agreement to publish could not be achieved for a more detailed document” (Interviewee 1).…”

“…Certainly, between 2000 and 2006, there were a number of external factors, including the publication of the OSCAR Report and The Loughborough Report (see, for example, Calvert, 2005; Jones Lang Lasalle, 2000) and tenant satisfaction surveys (see, for example, Tinworth, 2005; RICS, 2005), and a shift in market forces resulting in tenants gaining power relative to landlords (see, for example, Tinworth, 2005). However, the 2006 Code is alone in that it appears to have succeeded in creating change in the industry, albeit perhaps slower than desired (see for example Eccles and Holt, 2009). Again, whether this is a direct result of the guidance note status or of environmental factors is difficult to ascertain.…”

“…In the current market, the need to retain income and control costs is seen as a driving force of behaviour (Crofts, 2010; Davey, 2010). That said, whilst it is not mandatory, a guidance note is an authoritative statement by RICS on how its members ought to carry out their work with consequent legal (Eccles and Holt, 2009) and implied contractual (Barrass, 2006) force. Additionally, the duty of care imposed upon a professional by requiring that they adhere to a standard of reasonable care while performing their service is given clearer parameters by the existence of the Code.…”

“…A commercial tenant or service charge payer should be able to rely upon the fact that service charge demands are calculated in accordance with the lease and that the moneys paid are correctly held and used for the appropriate purpose. However, as recent research has shown (Eccles and Holt, 2009, 2010b), tenants are often provided with service charge information that is untimely, inaccurate, incomplete and inconsistent. Morgan (2010, p. 16) reports on the most recent 2009 IPD Occupier Satisfaction Index that “service charge transparency remains a major concern for occupiers”.…”

Financial reporting for commercial service charges in the retail sector

“…Whilst previous research in the field of commercial service charges, including Jones Lang LaSalle (2012), RealService (2013), IPD Occupiers (2009), Calvert (2008), Eccles and Holt, 2012, 2012and 2011b, has used a variety of data collection methods, the most compelling conclusions come from research derived from data hand collected from the actual service charge documents issued to occupiers by managing parties (Calvert, 2008;Holt et al, , 2012. This present paper uses data obtained from the actual service charge documents supplied to occupiers at UK shopping centres to assess their aggregated level of compliance with the RICS Code of Practice.…”