Websters Accountants - Property Accounting & Property Auditors

Andrew Salmon comments that, normally, all service charge expenditure for a property is amalgamated annually and firstly apportioned to the individual units in the agreed percentages. Next, the appropriate proportion of this annual expenditure for any unit with a void period is then apportioned to the landlord. However, in the case of a new building, where there is only a gradual take-up of the available units, this traditional method may be unfairly prejudicing the landlord. This is because, in the early part of the year, the expenditure  on such costs as security and common electricity may be quite low. With the increase in occupancy, these charges may rise dramatically but the landlord has to pick up the void percentage of the whole year’s expenditure, rather than a proportion of the lower cost when the various units were actually void.
A fairer split could be to separate the individual expenditure items into those incurred when the property was filling up and those incurred when the building was fully let. The landlord would then only pick up his proportion of the costs in the first period and not a proportion of the annual total.
Obviously, the apportionment could be split over even shorter periods and there are other questions of fairness to be considered, such as the temptation to hold back payment until the later (non-void) period.  However, overall, this revised method may be a fairer way of apportioning the first year’s service charge to the landlord of a new property.

A recent article by Shoesmiths considers the balance required between landlords’ desire to maximise income and tenants’ wish for improved terms of acceptance. Inevitably this often comes to a head over service charges.

Read the full article here