A pleasant working environment in a new office building will depend greatly on its management. Your comfort, safety, and well-being as a tenant are directly affected by management services. You are affected financially as well. The operating expenses of the building, including management services, are passed on to the tenant in the form of a service charge. The management of the building therefore, should receive the same careful scrutiny as the physical structure. 1. What is property management? Technically, it is the control by the property owner or his managing agent of the management services necessary to the external shell of a building and the internal common parts. Individual tenants would generally be responsible for services within their demised accommodation. 2. What is a service charge? A charge levied by the building owner or his managing agent to cover the cost of all management services provided by the landlord for the benefit of the individual tenants within the property. Once again it covers the external shell of the building and the internal common parts. 3. What does it normally include? The content of a statement of Service Charge expenditure on an office building in multi-occupation will vary according to the age, location and quality of the property. However, subject to the landlord's ability to recharge expenditure, as defined by each individual lease, it may be possible to include the following management services as permissible expenditure: Cleaning Window Cleaning Electricity charges Staff costs Staff accommodation Gardening and landscaping Heating, hot water and air-conditioning Insurance Fire procedures, fire precautions and fire practices All works relating to Health & Safety at Work legislation Water charges and water testing Lift maintenance General maintenance Maintenance of all plant and machinery Refuse clearance Security Toilets and toilet hygiene Signs Car parking Audit fee Management fee 4.Why does it vary from building to building? No two buildings are similar, either in the form of their construction or in the standard of accommodation offered to the individual tenants. A service charge can only be assessed as a budget of anticipated expenditure on an actual building, or by reference to specific costs incurred in an earlier financial period. Thus it is frequently misleading to compare the level of service charge on two separate properties, bearing in mind the age and style of construction at each property, the presence or otherwise at each property of management services such as on-site staff, security systems and air-conditioning, and finally the requirement of the landlord in each instance to establish the standard of building he is offering to the various tenants in occupation. In addition, the level of service charge expenditure at a property may vary considerably from year to year as the result of either programmed or emergency maintenance work. 5. When is it charged? It is normal practice (again subject to the lease provisions) for a building owner to collect "on account" service charge contributions from each tenant in a property, in advance, usually on the customary quarter days of 25 March, 24 June, 29 September and 25 December (except in Scotland where alternative quarter days are used). In this way, the service charge costs at a property are funded throughout the financial period by the individual tenants, ensuring that there are always funds in hand to pay service invoices. At the end of each financial period, usually on an annual basis, a schedule of service charge expenditure will be assessed by the property owner or by his managing agent. Under normal circumstances, but again dependent upon the wording in each individual lease, this schedule would then be audited, and the final details passed to each tenant. On the basis that there is a shortfall of "on account" collections against actual expenditure, the building owner or his managing agent would then invoice each individual tenant to collect the balance of service charge due. If surplus "on account" funds are held at the financial year end, these can either be passed back to each tenant by the building owner, or alternatively credited towards the forthcoming year's service charge. 6. What is a capped service charge? During the recession, it is proving extremely difficult to let vacant office accommodation. Perhaps unfairly, the blame for this is being placed by a proportion of building owners on the level of service charge expenditure, the argument being that service charge is regarded as additional rent by a prospective tenant. Thus in certain cases it is now possible for a tenant to find accommodation in a property with a "capped" service charge, that is where the extent of the service charge is restricted to a fixed level. This level represents the maximum liability of a tenant, with a building owner being responsible for any surplus service charge expenditure in excess of this level. This practice can be dangerous to an owner. Whilst realistic estimates of likely service charge expenditure at a property may be assessed, this estimate would not take account of any unanticipated or emergency maintenance work. 7. What is a sinking fund? The provisions of an individual lease will on occasions permit a building owner to collect service charge monies in advance, in anticipation of future major works of refurbishment or replacement, as opposed to works due for implementation within the current financial period. This way, a building owner may reason that the level of service charge at a property is kept relatively stable at all times, as opposed to a series of peaks and troughs where provision for a sinking fund is not included. However, sinking funds are universally unpopular with tenants, who are suspicious of passing over substantial sums to an owner in advance of somewhat uncertain future works to a building. A tenant may also feel that he could be paying for works to be implemented at a time after he has moved out for the benefit of other tenants within the property. The calculation of future sinking fund requirements can also cause difficulty to a building owner, in that whilst a replacement cost can be clearly identified, the level of inßation to be included for the period until works are planned is frequently less easily identified. 8. What are the managing agent's responsibilities? A building owner will frequently appoint a managing agent to co-ordinate the management services to a property on his behalf. In this instance, the managing agent will be acting on behalf of the owner in the provision of various services listed under item 3 of this article. However, it should also be remembered that the managing agent's fees are being paid by the tenants as part of service charge expenditure, and therefore the managing agent should be available wherever possible to assist an individual tenant on any matters affecting his occupation of the property. Prepared by Richard West, Chesterton