SERVICE CHARGE AUDIT

Description

25,000 square feet with four floors.

Overview

Property Solutions undertook a service charge audit for a client about to renew their lease for a 15 year period. The audit was important to ensure that the service charge level was fair and in compliance with the lease.

Process

The audit revealed a significant amount of money had been collected for a sinking fund which was to be used for replacing the cooling tower. The money in the sinking fund was in excess of the amount required and the managing agent eventually revealed proposals for M&E refurbishment costs ranging from £1.1 - £1.7 million. Despite the fact that the tenant is responsible for 80% of the building’s service charges these costs had not been disclosed to the tenant previously.

Property Solutions M&E consultants investigated the case and put together an alternative proposal costed at between £40,000 and £50,000.

Result

The landlord accepted Property Solutions’ revised proposal and a feasibility study was undertaken to assess the options. The tenant accepted the new 15 year term lease and the landlord achieved the necessary level of investment from the tenant to meet future building requirements.

SERVICE CHARGE CONSULTANCY

 

Description: 
Modern glass clad multi-tenanted office block with mirror image adjoining building.  c.67,000 ft.
 
Overview:
Review the annual service charges on the building and make recommendations on ways to reduce the costs.  To make cost savings Property Solutions reviewed procurement of services, energy consumption, security and M&E maintenance.    

Result:

Original annual service charge cost: £555k

Annual service charge cost after consultancy: £385k

Issues:

Procurement of services

Property Solutions reviewed the services provided and concluded that the building was missing out on the economies of scale with the adjoining building.  Property Solutions persuaded the managing agent to discuss with the adjoining owner how they could use the same contractors to provide the same services.  It was also agreed that a link be formed between the two CCTV systems to enable a security guard to monitor the camera in both buildings. 

Energy consumption

Property Solutions discovered that the communal lights were switched on 24/7.  To reduce cost and save energy it was recommended that sensors were installed out of office hours.

Security

The building was heavily guarded when there were limited threats to security.  The CCTV system was dysfunctional and only used for ‘after the event’ recording.  Property Solutions proposed that the CCTV system be upgraded, and the security guard monitored the adjacent building. 

M&E maintenance

Property Solutions found that the cost of the M&E maintenance contract was high and had not been re-tendered for a number of years.  Property Solutions advised on the re-tender process and achieved a significant reduction on the annual maintenance cost.

SERVICE CHARGE RECOVERY

A client with a large quantity of sub-let space had been under-recovering service charges from his tenants for a number of years. By improving data sourcing from within the client company and subsequent analysis and recovery procedures we have been able to raise demands totaling £4.0m to date, covering a six year history with ongoing demands of £750k p.a.

SERVICE CHARGE ADMINISTRATION

For a client with more than 550 leasehold properties and a total service charge bill of £10.5m per annum, we took control of the administration of the service charges paid to landlords. We reviewed demands, budgets & certificates to ensure charges were correct and reasonable. We provided monthly reports, quarterly payment advice and identified savings opportunities which achieved £230k one off savings plus £73k p.a. ongoing savings in the first year.

AIR CONDITIONING

At an 80,000 sq ft prime Bristol office building we were originally called in to review the landlord's proposal to replace the main chiller plant. We discovered major limitations in the performance of the air distribution system on the tenant's floors. Working alongside the landlord's agents we determined a detailed schedule of condition and agreed repairs to the system. The costs for this were shared by both the landlord and the tenants.

MANAGEMENT FEES

Landlord's agent attempted to charge management fees on top of professional fees for refurbishment works on 140,000 sq ft office building in central London. Following negotiations directly with the Landlord, the agent's fees were reduced by 75%.

UTILITIES

At a 132,000 sq ft landmark office building in Bristol, the air conditioning was operational 24 hrs per day, 7 days per week which resulted in high utility costs and maintenance charges. Following discussions with the tenants & landlord it was agreed to reduce the operating hours of the main plant to core hours 5.5 days a week and make alternative provisions for the few staff who needed to work outside the agreed core hours. This resulted in savings of £87.9k p.a. The lower operating regime also relaxed the specification for maintenance and saved further on-going costs.

APPORTIONMENT

At a retail banking premises in Cardiff, the landlord was attempting to recover a full proportion (by area) of the common services of the whole building. We carried out an investigation and discovered that the majority of the tenant's systems were self-contained and that the tenant did not benefit from a large proportion of the services provided to the common parts. The lease permitted revisions to the apportionment basis. We negotiated a reduced apportionment for our client.

SINKING FUNDS

A sinking fund had been collected over a 10 year period totaling £650k. We pressed the landlord to disclose the reasons for the fund. We analysed the proposed medium term plan and discounting those parts of the plan which were outside the purpose of the sinking fund - within the terms of the lease - negotiated a return of some 50% of the fund to the tenants.

SECURITY

125,000 sq ft, 1960's office block in north London. Single main entrance with 2 guards, 24 hours per day + building manager. Tenants have own reception facilities and make very limited use of the building at night/weekends. Despite the high cost of manning, the building had a history of security failures. Following a detailed security review and discussions with tenants & landlord, new systems were installed and manning arrangements changed resulting in security improvements and savings to the tenants of £64.8k p.a.

REFURBISHMENT

Major 1960's shopping centre. Landlord declared proposals for £27m refurbishment and stated recoverable cost from the tenants of £11.4m. Acting for a group of 32 retailers representing 62.5% of the tenants, we carried out a comprehensive assessment of the condition of both fabric and services. The tenant's strict liability, under the terms of the lease, was assessed at £2.5m. Tenants investment considerations led to an agreed contribution of £4.7m saving £6.7m against the landlord's original statement.

REFURBISHMENT

1960's, 14 storey office building. Leases expired. Landlord replaced aluminium windows and spandrel panels with modern curtain walling at a cost of £500k. Landlord attempted to recover the cost through the service charge. Landlord also served a £140k dilapidations claim. We carried out schedules of condition and negotiated tenant's liability from service charge and dilapidations at £120k.