Latest news from Loughborough University
| 25 February 2005 | PR 05/15 |
Service charge costs a serious problem says major new research
The thorny issue of service charges* were tackled head on last week when UK businesses learned that they have been getting a raw deal and the commercial property industry worked out how it is going to respond to the challenges.
An 18-month study undertaken by a team from Loughborough University Business School led by Dr John R. Calvert, and sponsored by service charge specialists Property Solutions, revealed that one-third of all UK service charge expenditure needs to be monitored, and in almost half the cases, investigated – raising a question mark over £942 million of controllable costs.
This research was unveiled at the annual OPD Conference taking place at Canary Wharf on 24 February – and coincided with the launch of the Royal Institution of Chartered Surveyors’ Tenant Satisfaction Index.
With almost 75% of businesses now occupying office space, the UK multi-let office market has grown to 637 million sq ft, with service charges costing occupiers over £3.25 billion.
The Loughborough University study, which began in 2003, covered five years of service charge data from 161 buildings comprising 15.5 million sq ft.
The key findings include:
- £942 million of service charges levied on occupiers of multi-let
office premises need monitoring, of which £427 million require
immediate attention and investigation.
- The average service charge costs for the 161 buildings surveyed are
£4.70 per sq ft. However substantial variations were revealed,
with 41% of respondents paying an average of £8.07 per sq ft and
20% paying an average of £10.24 per sq ft. Only 10% of the cost
variations between buildings can be attributed to location, size, VAT
status or air conditioning.
- Many tenants do not realise that service charges are controllable
costs; sizeable savings and improvements can be achieved with negotiation.
- Tenants find it difficult to budget because service charge certificates
are issued retrospectively by landlords up to two years after the year
to which they relate. Many buildings did not have service charge budgets
at all.
- Service charge certificates use a very wide range of labels to describe
the costs, making comparisons difficult. A total of 320 different cost
descriptions were used across the 887 certificates analysed.
A separate pilot study of 20 further buildings at the end of 2004 confirmed the conclusions of the Loughborough University Report. It found:
- Every building had a different landlord and managing agent, and therefore
a different way of presenting service charge data. In comparing buildings,
it was found that no two service charge certificates used the same cost
descriptions which meant it was difficult to check the basis for the
apportionment of costs to the tenants.
- 64% of service charge certificates were missing; 14 out of 20 for
year 2001 are still outstanding.
- The timeliness of service charge budgets was also an issue, with
only 6 out of 20 budgets issued for 2004, and 2 out of 20 for 2005.
- The actual expenditure for each year described on the service charge certificate was often very different from that set out in the original budget.
The first key recommendation is that the commercial property industry needs to unite and agree a strategy for consistently describing service charges to allow monitoring of existing service charges to take place.
The second key recommendation is that a body such as OPD should then collect the data to provide bench-marking of actual current charges.
The third key recommendation is that a study is needed into what service charges should be rather than what they have been. This involves looking at service levels and at suppliers of services, and thus enable a real negotiation between landlord and tenant to take place over what is provided.
* Service charges are the costs levied on commercial tenants
for the provision of services within the common parts of buildings. These
include security, cleaning, lighting, heating, reception, lifts, plant
maintenance and refurbishment.
Ends
For further information contact:
- Hannah Baldwin, Head of PR, Public Relations Office
T: 01509 222239, E: H.E.Baldwin@lboro.ac.uk
Notes to editors
Loughborough has an established reputation for excellence in teaching and research, strong links with industry, and unrivalled sporting achievement. Assessments of teaching quality by the Quality Assurance Agency place Loughborough in the top flight of UK universities, and industry highlights Loughborough in its top five for graduate recruitment. Around 45% of the University’s income is for research. The University has been awarded four Queen’s Anniversary Prizes: for its collaboration with aerospace and automotive companies such as BAE Systems, Ford and Rolls Royce; for its work in developing countries; for pioneering research in optical engineering; and for its world-leading role in sports research, education and development.