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.
An ongoing discussion between large retailers and the UK’s biggest landlords (members of the British Property Federation) has surfaced because retailers object to paying rents quarterly in advance saying this causes them cash flow issues. Responding, the BPF landlords ran a pilot scheme in four shopping centres to reduce overheads through service charges by delaying maintenance projects and ”and by mutually identifying changes to service requirements.”
This is very interesting because it’s been historically the landlord who sets out the level of ‘services’ that tenants receive in a shared occupancy building.
What if the tenants were able to choose the level of service they wanted in future – for example, weekly cleaning rather than daily or increased security cameras / guards near their stores. A menu-driven approach would mean that the days of one-size-fits-all may end and a more flexible service could be delivered enabling retailers to pick and choose from a range of services to suit their particular needs.
the areas where the cost review is focusing its attention include:
- Engagement with retailers
Hours of operation
Cleaning and environment
Administration, procurement and purchasing of services
Plant and fabric maintenance
Utilities and energy management
The BPF press release