BCSC Conference
Next week the annual BCSC Conference rolls into town in Manchester.
Websters Partner Andrew Salmon and Birmingham office head, Richard Brown will be attending.
Let us know if you would like to meet us there.
Effect of VAT ‘normalising’ on service charges
The short term reduction of the standard rate of VAT, from 17.5% to 15%, introduced from 1 December 2008 in a bid to help alleviate the effects of the recession is due to come to an end at 31 December 2009.
The rate will then return to 17.5%, unless the Government decides that the economy still requires the added stimulus that this reduction was designed to provide and extends the period beyond that date.
Our experience shows that when the rate was reduced some suppliers passed on the benefit of the reduced VAT rate, as the Government had intended, by keeping their net costs unchanged, resulting in a reduction in the gross cost. Other suppliers kept their gross costs unchanged, effectively taking advantage of a “hidden” increase in their net charges.
Presumably, when the VAT rate returns to 17.5%, the gross cost for the former group will simply return to the previous level, whilst the latter group will retain the increased net cost and apply the higher rate of VAT.
In terms of service charge situations the overall effect on a service costing £1,000 plus VAT prior to 1 December 2008 can be summarised as follows :-
| Residential service charges | Commercial service charges | |||
| Option to tax | No option to tax | |||
| Prior to 1 December 2008 | £1,175.00 | £1,000.00 | £1,175.00 | |
| Rate reduced to 15% : | ||||
| 1.) | Net cost unchanged | £1,150.00 | £1,000.00 | £1,150.00 |
| 2.) | Gross cost unchanged | £1,175.00 | £1,021.74 | £1,175.00 |
| Rate increased to 17.5% : | ||||
| 1.) | Net cost unchanged when rate reduced | £1,175.00 | £1,000.00 | £1,175.00 |
| 2.) | Gross cost unchanged when rate reduced | £1,200.54 | £1,021.74 | £1,200.54 |
| Assumes no inflationary increase in the cost of the service during the period. | ||||
Therefore, for residential tenants and tenants of commercial non-opted buildings there has been a short-term benefit of lower costs from those suppliers who “played fair” and passed on the benefit of the VAT rate cut, offset by a disadvantage of a higher cost base going forward from January 2010 for those suppliers who took advantage of a hidden price increase.
Watch out for your next service charge statement.
For commercial tenants of opted buildings there is no up-side from suppliers who passed on the benefit of the VAT reduction (other than in cash flow terms), only higher costs going forward from 1 December 2008 for those suppliers who took advantage of a hidden price increase.”
Alternatively, you could just use the first paragraph as a bald statement of fact if you think that my subsequent comments are a bit too cynical!
The Companies Act 2006 may have arrived
The final parts of the 2006 Companies Act bring changes of interest to landlords, managing agents and company secretaries of property management companies. On 1 October 2009 the following changes will take effect:-
1. New forms must be used to notify Companies House of events occurring after 1 October 2009.
2. PROtected On-line Filing (PROOF) has been introduced at Companies House to prevent unauthorised and malicious filing of incorrect documents.
3. The private addresses of directors no longer need to be published at Companies House, although such information has to be available to regulatory authorities such as the police and Inland Revenue. Previously filed private addresses can be removed for a fee of £140.
4. In addition to the registered office, companies can nominate a Single Alternative Inspection Location, where registers can be kept for inspection.
5. New companies can now have a “Constitution” based on model articles, which are much simpler than the old “Table A”. There are a number of simplifications available under the Constitution and therefore it is generally preferable for companies to make the transition.
6. In future, the Articles may be set up to permit the change of the company’s name, which will be a far simpler process than the previous requirement for a special resolution.
7. Redeemable preference shares no longer need special authority from the Articles.
This is necessarily a very brief review of the changes. Please let us know if you would like further details or clarification about how they affect your business.
Ian Stubbs, Partner
Tenant dissatisfaction continues?
A recent article in Property Week written by Christopher Hedley, a director of IPD, about Occupiers and Management highlighted the general dissatisfaction of tenants with how their managing agents and landlords deal with service charges.
The majority felt that the large increases in service charge costs could not be justified and that control and communication of costs by managing agents was poor – so much so that fewer than 10% of occupiers felt they were getting value for money.
The tenants also expressed major concerns over exceptional expenditure and improvement costs. At best these create unpredictable variations in service charges year on year and at worst may be outside the scope of recoverable service charge expenditure.
Article on how to challenge landlords’ service charge demands
We found an article written by Karen Philips at DWF lawyers setting out some clear advice on how tenants can challenge landlords’ service charge demands for the forthcoming year.
She has some good suggestions:
- collaborate with other tenants
- check other sites and compare costs
- consult your landlord early about your dissatisfaction
- react quickly to the demand
- pay the part you have no issue with
- know your lease terms
- check the RICS Service Charge Code of practice
Here’s the article in full, thanks Karen for a timely reminder.
Service charge provisions within leases
A nice article in the Liverpool Daily Post about the lease contract between landlord and tenant in mixed-use properties affecting service charge claims.
The question is whether tenants are able to rely on their lease provisions to force landlords into giving the best value for the services they are obliged to provide?
Best value is an ambiguous concept, particularly where the price paid for shared services may be negotiated several years at a time and may not rise and fall rapidly as market conditions vary. But we like the suggestion that the best Landlords will always be BPF Lease Code compliant.
Entertainments are not “promotions” for service charge purposes
In the current economic climate landlords and tenants will continue to consider in great detail the service charge provisions in leases and to review what expenditure is and is not recoverable. Service charge disputes are likely to become more common according to CMS Cameron McKenna.
This came about after a legal decision of Boots UK Limited -v- Trafford Centre Limited in 2008 when the High Court held that the landlord could pass on the cost of entertainments, Christmas decorations, a Christmas grotto and a large permanent television screen to its shopping centre tenants via the service charge.
The court held that all these items were each a facility, an amenity or an attraction, rather than a form of promotion of the shopping centre and therefore the entire cost was to be included in the ordinary service charge with no contribution from the landlord. In contrast, had these items been classified as a promotion, then the cost of providing them would have had to be shared between the landlord and the tenant. Source Dorsey & Whitney
. A summary is downloadable from Ashursts.
Forsters explain in more detail the items Boots contested and why the judge found against them.
Emirates residential property drops service charges
A report from United Arab Emirates about residential landlord, Nakheel (Dubai World subsidiary) dropping service charges on its residential holdings at its Discovery Gardens development.
Residential service charge audit questions
Over the weekend we read an interesting article in The Times in which asks the question
There is no evidence that the annual service charges on our flat have been audited. What are our rights?
The answer, by expert Mark Loveday, states correctly that there are no legal requirements to have audits.
Most properly presented annual service charge accounts are signed by a managing agent or an accountant to certify their accuracy.
He makes passing reference to this becoming a legal requirement in future. Naturally, we think that audited accounts are the best possible security for all parties, landlord, tenant and managing agent.
When this does become law, the need for a common format for presentation of the annual service charge statement for residential properties will necessitate changes for many sites.
Residential landlords may get water bill liability
The Government has commissioned an independent review into charging and metering for water and sewerage services. This is being run by Defra and Chaired by Anna Walker, Chief Executive of the Healthcare Commission.
In a headline-grabbing reaction, the Property Week says that part of the proposals would leave landlords liable for unpaid water bills from departing tenants.
The review is still at the consultative stage and interested parties have until 28th August 2009 to respond to the interim report.
