The 2005 Loughborough Update Report
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Extends the original five year report with a further two years of data. Looks at budget and certificate lateness, the problems of comparing costs across buildings with 230 different cost categories and updates the costs to UK companies in the original report. The study’s author, Dr John Calvert of Loughborough University, presented the findings at the IPD/IPF Property Investment Conference in Brighton an event which attracts over 450 property professionals. He claims that nine months after the full research was published the industry, now estimated to be worth in excess of £3.5 billion p.a., has failed to publicly respond to calls for better regulation. The study identified the following issues as a cause for concern:
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- Many tenants are unaware whether the service charges they pay are fair or reasonable due to a lack of information available to them.
- There is no standard measurement of service charges. The study recommends that service charges should be calculated on a pounds (£) per sq ft basis in order that cost comparisons can be made.
- There are no economies of scale for the charges that companies pay.
- Tenants do not always receive budget statements in advance of charges being incurred. This affects the ability to set budgets and can cause cash flow issues.
- Certificates (reconciliation of tenants’ charges) are often not supplied until a long time after the charges have been incurred. The study found that 25% arrived at least one year after the period they related to and at least 10% arrived more than two years late.
- There is no consistency in the classifications of costs. The study identified 230 different descriptions of service charge costs.
- The study has produced a monitoring limit of £4.70 per sq ft. Any charge above this level should be monitored and any over £7.10 per sq ft requires immediate action.
Loughborough University is calling for three proposals to be put in place which will address the tenant’s concerns.
- Actual establishment of a voluntary code of practice on service charges supported by a ‘Kitemark’ endorsed by the industry, ideally by the RICS (Royal Institute of Chartered Surveyors) to ensure that tenants can demand timely information on future and incurred costs.
- A nationally agreed and recognised cost classification based on the OPD’s standard classification of costs that is used by all managing agents to clarify charges.
- A feasibility study should be set up for a central database of service charge data which can be used to provide national guidelines for warning and action limits for actual service charges.
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