SME/PROFESSIONAL COUNSEL - Property - Service with hidden extras. Tenants should scrutinise their leases to avoid being overcharged.
Commercial landlords often provide services such as building maintenance, lifts, security, cleaning or manning of reception areas and recover the costs by apportioning them among the building's tenants. The problem for the tenant is that, while these costs often make up a significant proportion of the costs of running a growth business, unlike other costs and charges, they can be difficult to control. Also, some landlords take advantage by recovering more from each tenant than they are entitled to under the terms of the business lease. Many tenants, therefore, may be missing opportunities to reduce their service charges by failing to scrutinise their leases and the amount their landlord is claiming.
Not all landlords slip in extra items or overcharge. Most simply wish to recover all their costs and maximise their income. Yet tenants should be vigilant, particularly where units within their building remain vacant.
Landlords may be tempted to minimise the shortfall. Equally, they may bump up the bills if they wish to upgrade a building substantially to improve its value. Most leases say the landlord can recover the costs of maintenance and repairs for the external and common areas, and this can include replacement. Where a landlord tries to use this provision to refurbish the building to an improved standard, the tenant can be landed with a big bill for the upgrading work and then find that the rent at the next review is also greatly increased to reflect the improved state of the building.
So what can tenants do to avoid being overcharged?
- Scrutinise the lease to make sure the landlord is entitled to charge for every item billed, and that the cost apportionment is correct.
- Make sure that the landlord's charge has been calculated properly. Errors in addition can and do happen, and they are rarely in the tenant's favour.
- Compare the bill with those from previous years as well as with the landlord's budget for the current year.
- If tenants have access to data from similar buildings, they should benchmark the costs.
- Where the landlord is charging on account, with an end-of-the-year reconciliation, chase up the statement at the year-end in case there has been an overcharge.
Landlords can be slow to produce these statements.
Robert Foster is a partner at the surveyors Weatherall Green & Smith 0171 405 6944.