Industry comment, updates and news from the Websters team.
Commercial landlords and property agents of multi-let buildings or houses in multiple occupation (HMOs) are often facing problems when recharging tenants for energy. An article in FM World says that many buildings apportion utility costs on a floor area or fixed percentage basis but tenants are now expecting to be charged for actual usage, which can lead to potential disputes.
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Mike Suggett of Browne Jacobson has pointed out that where a tenant of a commercial property seeks to negotiate into a lease the ability to terminate the lease early, he will usually wish to secure the break right conditional only on serving notice. However, this can be unacceptable to some landlords who may insist on more onerous conditions . Some of these conditions can be complied with relatively easily, but some can be so onerous that they will allow a landlord to effectively frustrate a tenant’s right to break the lease early.
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Karl Anders of Walker Morris explains that the Court of Appeal has confirmed that deadlines for complying with conditions for relief from forfeiture are not necessarily set in stone.
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An article from Shoosmiths points out that many leases provide for a landlord to create a reserve fund of service charge contributions to cover recurring costs such as maintenance, cleaning and redecoration.
These funds are distinct from a sinking fund which is designed for costly rainy day items such as replacing lifts or air-conditioning plant.
A reserve fund helps to balance the financial burden on the tenant, as it avoids fluctuations to their service charge contributions, and gives greater certainty to the landlord that funds will be available in advance to cover the day to day cost of providing services.
The recent case of Caribax Ltd v Hinde House Management Company Ltd reminded us that residential landlords are obliged to hold reserve funds on trust for their tenants and must give effect to the service charge terms of the lease.
But what is the position for a commercial landlord?
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In an article from Trethowans, Paul Longman reports that it may seem a long way off but, from April 2018, landlords “may not let” commercial properties with an EPC rating of F or G unless improvement is not practicable or an exemption applies (for example, if the tenancy is for a term of 6 months or less). Similar regulations will apply to residential properties.
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The Keeble Hawson Commercial Property team has reported that a tenant had exercised a break clause, ending a lease early and sought a refund of parts of payments it had made in advance in respect of rent, service charge, car parking and insurance charges, which related to a period after the break date. However, the Court of Appeal ruled that it was not appropriate to imply a term into a lease that entitled the tenant to a refund in respect of payments that it had paid in advance in accordance with the terms of the lease.
In the case of Arnold v Britton & Ors [2015] UKSC 36, Gary Milner-Moore and Joanne Keillor of Herbert Smith Freehills LLP comment on the Supreme Court’s conclusion that, in interpreting a service charge provision in a number of long leases, arguments based on commercial common sense should not be used to undervalue the importance of the actual words used, and that the correct interpretation was one which applied the natural meaning of the term.
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Websters senior partner David Goddard says that ‘when we started specialising in service charge audits they were frequently undertaken as part of the property owner’s general annual audit. This was not a satisfactory situation because specialist knowledge is needed for accurate service charge accounting assessment.
• Landlords and tenants have transparent financial relationships
• Tenants trust that the service charge is correct and fair at no added cost to the landlord
• A reduction in investigations by tenants into service charges, saving time and money for landlords
• Specialist advice on current techniques for the internal accounts team
• Almost all general practice accountants and auditors unfortunately do not have the specialist knowledge and experience to fully understand your needs
Since that time many large landlords in the UK have moved to providing independent audited accounts for their service charges thus removing one cause of landlord : tenant conflict’
Helen Pickard of Nabarrows reports that The new Heat Network (Metering and Billing) Regulations 2014 have now been amended, which is good news for landlords, as the New Regulations give them more time to register.
Under the New Regulations, landlords of multi-let buildings that have a central plant for heating and/or cooling systems must register with the National Measurement Office by 31 December 2015 (and not 30 April 2015 as previously required)
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DAC Beachcroft has reported that a landlord of a multi-let building or estate will often have leases which fall for renewal at different times. Old service charge provisions will require review and possibly updating to account for new services being provided in the modern age.
Landlords will generally wish to avoid the administrative hassle involved in managing two or more different service charge régimes. One way of doing so, recommended by the service charge code, is to include two service charge provisions within new leases.
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