Landlords should be explicit in their offer about any service charges, including how these costs are calculated, what they cover (and don’t cover) and the extent to which they will be obliged to pay towards any capital improvements and long-term repairs or replacements of structure, fabric, machinery and equipment. During negotiations landlords must provide best estimates of service charges, insurance payments and any other outgoings that tenants will incur under their lease and provide details including contact details of any management company where appropriate. Tenants should expect landlords to be transparent in terms of these costs and how they are calculated. Furthermore, tenants should be aware of any imminent capital improvements, long term repairs, replacements or changes in fabric, machinery and equipment which will incur additional capital costs over and above the existing service charge. Landlords must disclose known irregular events that would have a significant impact on the amount of future service charges and any provisions regarding the sinking fund.
There are two key documents we recommend you take a look at:
- SCSI Service Charge Code for Commercial Property
- MUD Act
These Professional Guidance documents outline best practice in terms of transparency and equity when dealing with service charges and budgets. Landlords can reference these documents to check if their agent is conforming to industry best practice and if they observe its guidance in drafting new leases.