Resolving a service charge dispute without upsetting the Landlord

In response to economic pressures, Landlords and Managing Agents are reviewing service charge budgets to reduce running costs. In simple terms where service charge expenditure is a commodity such as electricity or gas, shopping to achieve the cheapest unit price is a prudent initiative. Where Landlords or Managing Agents are looking to reduce costs on service based contracts it may be difficult to achieve this without impinging on the service level offered. How should you challenge this or resolve a situation where you do not agree with a service charge apportionment or an element of expenditure? What ever action a Tenant decides to take, always look to preserve the relationship with the Landlord. Often this can be lost when a Managing Agent or Landlord refuses to discuss the matter.

So, what are the options?
 
There are several approaches to such a situation; the first would be to appoint a service charge specialist who can review the situation and share in any subsequent savings; the second would be for the tenant to persuade the Landlord or his Managing Agent, the error of their ways and convince them they need to reflect on either the level of service charge or the services on offer, or finally should the lease allow for it or an agreement is reached between the two opposing parties, to refer the matter to the RICS for mediation.

The first and second options often result in either souring the relationship between the Landlord and the Tenant, or a stalemate where neither is prepared to discuss the situation or concede the point. When a long unexpired period remains on the lease, neither of these options would be a good to note that in many instances where a lease contains a tenant break option it will be conditional on all other obligations being met in full. An unresolved dispute may affect thevalidity of any such notice.

Where discussions matters have stalled, consider referring sending the matter to mediation which is a simple and effective method to progress a dispute. So long as the Landlord and Tenant agree to allow this as a method of resolving a service charge disagreement, they must also agree to accept the findings of the expert. Agreeing to move along unresolved difficulties in this way will preserve the strong relationship between the Landlord and Tenant. In the current market this is of paramount importance.

The code for leasing business premises 2007

When you negotiate a new lease you should ask if the lease is to be “Code compliant”, and if not, you should enquire as to why this is the case as the Code has distinct advantages for tenants.  In the present financial climate, many landlords are finding it hard to get good tenants and therefore tenants should be aware that they are in a much better position to negotiate lease terms that are more “tenant friendly”.  The Code is advisory and not legally binding and therefore cannot be enforced by law on a landlord. It was, however, launched by the government to achieve a fairer balance between the landlord and tenant and greater flexibility in commercial lease terms.

It is important for a tenant to raise the matter of the Code at the negotiation stage so that any Code compliant terms are included in the Heads of Terms before they reach the lawyers advising on the lease itself. In this way, the actual legal side of the transaction should be cheaper and shorter in time to complete!

The main benefits of the Code for tenants are as follows:-

1. If you have a “break clause” in the lease the Code provides that the conditions attached to the break must be clear and any pre-conditions limited.

2. Rent reviews should be clear and should not contain provisions that are aimed to achieve a headline rent.

3. On transferring the lease the only restriction on such a transfer should be obtaining the landlords consent, which should not be unreasonably withheld or delayed, and with limited preconditions to such consent. 4. It contains recommendations as to service charge information which should be given to tenants at the negotiation stage.  5. It states that the tenants repairing obligations under the lease should be appropriate to the length of the lease and appropriate to the condition of the premises at the start of the lease.  6. It contains recommendations on alterations, change of use and insurance.