24.01.07 - FM World: SERVICE CHARGES LAG BEHIND GOOD PRACTICE:

The service charge industry is light years behind the FM and PFI sectors. That was the message from Mike Slade, chief executive of property development and investment firm Helical Bar, speaking at yesterday's launch of this year's Loughborough Service Charge update The Truth about Service Charges at the Institute of Directors.

The relationship between landlords, managing agents and tenants is changing he said. "Preferred landlords are on the horizon, where landlords will meet tenants half way. Then tenants will choose to stay with that landlord wherever they might move in the country."

The industry must move into a partnership phase but he dismissed the need for legislation in this area. "Landlords are best served by investing in the occupier's needs."

"This is a new dawn and a major shift in the landlord and tenant relationship." But he warned that it was a two-way street and if landlords made the effort to serve occupiers better, tenants had to meet them half way. "Tenants will need to pay extra for the management and service we supply."

Tenants are prepared to pay more for good service and good information argued Matthew Punshon, chief operating officer of property outsourcing firm the Asset Factor who likened property management to FM 20 years ago. "There are no defined service levels with service charges and if you can't define what you do, how can you prove to your customer that you're doing it and also how can they prove that you're not?"

His comments were echoed by Chris Hedley, director of the Occupiers Property Databank. "Landlords have a 10-15 year relationship with their tenants which is unusual in business. It's a fantastic opportunity."

There are currently no beacons of good practice in the managing agent sector, Dr John Calvert, author of the Loughborough research told the 150 delegates at the event. The poor level of current achievement in meeting the standards of the Rics Code of practice on Service Charges results from poor management by small, unprofessional and unregulated managing agents, he said.

The Loughborough Service Charge study revealed that the UK multi-let office industry is a long way from meeting the RICS Code of Practice Guidelines which come into effect in April 2007. It suggested that the RICS Code has "grossly underestimated" the extent of the issues involved and that current compliance to the code's recommendations is poor.

The study examined 386 buildings and 1,788 service charge certificates and found that: just 4 per cent of landlords delivered the budget one month prior to the start of the year; 21 per cent delivered certificates within four months of the end of the year; 22 per cent had fixed-cost management fees; just 13 per cent had interest credited to service charge accounts and 15 per cent had budgets within 2 per cent of actual costs.

"The present achievements fall significantly below best practice as required by the code and good commercial practice which is expected of all office tenants," said Calvert.

"Landlords have some way to go to meet standards set out by RICS" agreed David Barrass from Property Solutions, which sponsored the research.

As a result the study is calling on RICS to:

• Implement a centralised data collection system of uniformly coded service charge data and make this data publicly available to allow industry analysis and benchmarking
• Establish and publish annual progress reporting against performance benchmarks as set out in the code
• Publish a standard management contract for managing agents
• Monitor and review the effectiveness of ADR for service charge disputes