Documentation

The landlord produced service charge budgets that contained unrecoverable and unreasonably high costs. We were able to negotiate an extension to our client’s cap with a potential saving of £1.7m.

Description

Our client occupied approximately 50% of a large corporate building, totalling 170,000 sq ft.  The landlord occupied the remainder of the building which was utilised by both parties for mainly transactional and call centre purposes with 24 hour service provision.

Issues

The leases provided for service charge caps during the first three years of the lease and the landlord commenced collecting on-account payments at the level of the cap from the outset. 
Property Solutions’ involvement commenced five years into the lease term. It was evident that no service charge budgets or certification had ever been produced.  The landlord proceeded to produce certificates and budgets for the years immediately after the expiry of the cap which, exceeded the level of the cap, claiming that costs for previous years would have exceeded the cap also.  The service charge documentation contained many costs that were not recoverable under the terms of the lease. The landlord then produced fresh documentation which, whilst omitting the non recoverable items, included additional costs. In particular, energy costs were running at £3.60 per square foot.

Process

We undertook an in-house analysis of the landlord’s service charge demands and ascertained that several elements were unacceptably high. Negotiations commenced with the landlord and after the implied threat of litigation, an agreement was reached.

Results

Whilst no satisfactory service charge documentation has ever been completed, we were able to negotiate an extension to the cap for the full ten years of the lease with a potential saving for our client of £1.7m over the levels of costs being proposed by the landlord.