Management Agreements and Service Charges

New Year..

New Service Charge budget..

New Strategies…

As the commercial property market continues to embrace different ways of operating spaces, there has been an increased demand for management agreement structures between landlords and operators. With this in mind, it is important to consider how occupiers are treating commercial service charges when undertaking these types of arrangements. 

Traditionally occupiers are liable for a fair and reasonable proportion of the common area services in a building. How the service charge gets treated will vary from one agreement to the next, however, many occupiers do not feel comfortable reviewing or challenging the building budget spend given the unique nature of the agreement whereby, the occupier is operating the space on a Landlord’s behalf. 

If we look at this another way, the occupier, operating on the space on the landlord’s behalf, is incentivised to maximise and promote the excellent operation of the building in order to ensure an exceptional end user experience. By not interrogating the costs and services associated with the common areas then how can the occupier seek to ensure that the user experience carries on throughout the building? (once a user has left the operated space.)

For example, a user of a co-working space complains to the operator (who is running the space as a co-working office under a management agreement, on behalf of the landlord) that the external windows of their office are dirty. The operator, for the purpose of this example, is paying a quarterly service charge which includes the provision of external window cleaning. It is logical that the operator would take this issue up with the managing agent of the building to resolve it.  Upon review, it turns out that the external windows have not been cleaned in the last year due to equipment being out of service. The occupier, if they are paying the building service charge, would be within their rights to request a refund of this money and push for a resolution to assist the end user of the space. 

Service charges are an integral part of the maintenance and repair of a building. More and more however they are being used to add value to the end user experience of the building e.g.) towel service, provision of female sanitary items etc, with the cost being split fairly across occupiers. Landlords and operators want to attract and retain end users to the buildings. It is important to consider that areas of the building cannot function effectively in isolation and most of the time, the end user is not aware that their office and the lift lobby are operated by different entities. 

Therefore, in order to provide a seamless end user experience, which benefits both the landlord and operator of a space, the service charge structure should be considered and viewed as an integral part of any agreement between a landlord and occupier when deciding how to occupy and operate a building. 

If this is something that you would like assistance with, or more information on, then reach out to us at info@ljpropertyconsultancy.co.uk!