Annual Building Service Charges: Your Questions Answered

As a leaseholder, you may have to pay an annual service charge towards the upkeep of your building or development. But what is this charge and what exactly does it cover? Here, we look at the most common questions people have about building service charges.

What is an annual building service charge?

The annual building service charge is the fee you pay to cover the overall management of your building. Typically, this fee is levied by a managing agent – a third-party company responsible for looking after the building or development. It’s important to note the service charge is different to ground rent, which is the financial consideration payable under the terms of the long lease between you (the lessee) and your landlord.

How much is a typical annual service charge?

Service charges can vary dramatically. The average annual service charge is around £1,800 to £2,000, although it can be significantly higher for luxury properties in prime locations.

What exactly does the annual service charge pay for?

The service charge includes all the pro rata costs for the repair and maintenance of the building, including its common areas. In other words, the service charge pays for all the things – big and small – that make your building or development a safe and comfortable place to live. This usually includes:

  • Everyday maintenance and management
  • Repairs to the building or development as required
  • Buildings insurance, and health and safety measures
  • Gardening and maintenance of the grounds
  • Cleaning of communal spaces and windows
  • Wages for any staff employed at the development (for example, a concierge)
  • The managing agent’s professional fees

What are the advantages of the service charge?

If you’ve ever lived in a poorly-run building, you’ll know it can really impact your quality of life, not to mention the value of your property. A well-run building or development – i.e. one that is properly serviced, comfortable and safe – is a far more pleasant place to live, and a better financial investment.

How do I know the money is being used properly?

This is one of the biggest concerns people have about service charges, yet a scrupulous managing agent will always be transparent about how your money is being spent. For example, at Perry Hill, each building or development that we run has its own dedicated bank account for service charges and, every year, we share a detailed breakdown of the account with payees, setting out how the money has been spent.

With 25 years’ experience managing buildings and developments across the South East, Perry Hill understands how to deliver maximum value for development owners and residents. Learn more about our trusted approach to property management.

Looking for new commercial premises? A chartered surveyor is worth their weight in gold

Whether you’re starting a new venture, expanding your operations, looking to downsize, or moving to a new location, finding the right commercial premises is critical. Having a good chartered surveyor on your side can save you time, money and hassle during this process – and throughout the lifecycle of your occupancy. Here’s how.

Finding and assessing properties

(commercial agency services)

Chartered surveyors are property experts. So it makes sense that they assist with property search and selection, helping businesses with both lettings and property sales. At Perry Hill, we’ve found this approach brings big benefits; for example, when it comes to negotiating rent or assessing the condition of a property, we have an in-depth idea of the market and building. This helps the client avoid paying too much (in terms of rent or sale price), and helps reduce the risk of acquiring a property with defects.

Mitigating risk

(dilapidations and repair)

You’d expect to have a building survey done before purchasing a home, but did you know chartered surveyors regularly carry out building surveys on commercial lettings, as well? Many commercial tenants opt to have a building survey completed before they take on a new lease because it can save a fortune in unexpected repairs. It also helps to reduce the risk of inheriting repair obligations from a previous tenant.

Another way to reduce risk in commercial lettings is to get a surveyor to draw up a Schedule of Condition at the start of the lease. This forensic report on the property’s condition – including detailed photographs – acts as a contractual agreement between the tenant and landlord, and clearly defines the condition of the property. This serves to limit the tenant’s obligations to repair or maintain the property, and protects both parties against future disputes.

Negotiating a fair rent

(market value)

Engaging Perry Hill as rent review surveyors is a great way to ensure you’re not paying over the odds for your commercial premises. During the rent review, a chartered surveyor will assess the rental value of the property, taking into account valuation standards and current market conditions, then provide a detailed report on its rental value – a vital tool for rent negotiations, be they at rent review or lease renewal.

If you’re looking for new commercial premises, Perry Hill Chartered Surveyors can support you with the search and selection, carry out building surveys and inspections, and provide trusted rent reviews. What’s more, our experienced surveyors are accredited by RICS, the Royal Institution of Chartered Surveyors, meaning you can count on getting accurate, fair advice every time. 

The Importance of a Break Notice in Commercial Leases

A break notice or break clause is an essential part of any commercial lease, since it allows either the landlord or tenant to terminate the lease early. So far so simple. But making sure the break notice is worth the paper it’s written on? That’s where many commercial leases go wrong.

Why do you need a break clause?

The break clause can be one of the most difficult elements to negotiate in a commercial lease. Yet, there are clear benefits to both tenants and landlords. For the tenant, a break clause gives a certain amount of flexibility to react to market conditions – for example, by downsizing (or perhaps moving to a bigger space) as the business demands. It’s a much-needed safety net for tenants, particularly in unpredictable times like these.

And what about landlords? Surely they want to hang onto tenants for the full term of the lease? For the most part, that’s true. However, sometimes a landlord may want to redevelop or sell the property before the end of the lease. The break clause gives them that opportunity.

The potential pitfalls of a break clause

The idea behind the break clause may be simple, but the reality is often more complex than people expect. The courts deal with a surprising number of disputes over commercial lease break clauses – specifically, exercising a break clause to end a lease early.

In many of these cases, the break clause has been drafted in such an ambiguous way, it makes it difficult to exercise the clause in practice. Or sometimes the procedure for exercising the break clause hasn’t been properly followed, or certain conditions haven’t been met. Whatever the underlying reason, these disputes can be extremely costly.

Therefore, when you’re negotiating a new commercial lease, it pays to give your break clause plenty of attention, and seek specialist advice on whether it really protects your interests. It could save you a great deal of money and legal wrangling further down the line.

At Perry Hill Chartered Surveyors, we work with both tenants and landlords across London and the South East to agree unambiguous break clauses in commercial leases. From leisure and retail premises, to offices, industrial warehouses and mixed-use schemes, our team will ensure your commercial lease works for you. Talk to us about your commercial lease needs.

Why use a building surveyor at the start and end of your commercial lease?

A building survey is not just for properties being sold. In fact, there are many reasons why you might appoint a surveyor to carry out a building survey or inspection on a rented commercial property.

Assessing the condition of the property

All commercial leases have clauses regarding the condition of the property, and how it should be maintained. This wording is designed to protect both landlords and tenants. But when it comes to enforcing these clauses, or ensuring a commercial property is being properly maintained, professional help is often needed.

This is where a trusted building surveyor is worth their weight in gold. They can carry out building surveys and other inspections, and provide detailed reports (including photos) on the condition of the property and any maintenance issues. With this in mind, having a building survey done at both the start and end of any lease is a good way to reduce risk and ensure peace of mind.

As well as a formal building survey, surveyors can also help with:

Schedule of Dilapidations – when a tenant has failed to properly maintain the property, this report outlines the items of disrepair and specifies the work needed to bring the property up to scratch.
Photographic Schedule of Condition – this document sets out the condition of the property in forensic detail, and covers the repair and maintenance obligations for the length of the lease, as agreed between the landlord and tenant.
Rent reviews – setting out the property’s current rental value, this report can be used to support lease negotiations and ensure the rent is set at the proper market rate.

Benefitting commercial landlords and tenants alike

Many commercial tenants choose to have a survey done before they take on a new lease because it can save them a lot of money in unexpected repairs. And for landlords, surveys and inspections are a vital way to protect their investment.

Ultimately, working with a professional surveyor means both sides can be sure the advice given is accurate and fair – which helps to promote positive communications and deepen trust between the landlord and tenant.

At Perry Hill Chartered Surveyors, we support both landlords and tenants with the full range of surveys, inspections and valuations. Discover how we can help you get the most out of your commercial lease agreement.

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