FAQ's

Q. "Why are my actual costs so different from the budget?"

A. Budgets are the basis for collection of the following year's service charge payments made on-account and are often based on what was budgeted and collected last year - before the actual costs for the year are available. Thus budgets may be based on costs that are two years out-of-date and may take little or no account of additional works that may be necessary in the forthcoming year.

Q. "Do the service charge costs have to vary so much each year?"

A. With proper planning, service charge costs can made less variable. More importantly, proper planning can provide tenants with a medium and long term view of what to budget for in the future. One-off expenditures can be programmed into the future and tenants consulted well in advance

Q. "Why are the budgets and certificates so late on this building?"

A. There is no good excuse for late budgets or certificates. The RICS Code of Practice requires budgets to be provided one month before the start of the year and certificates to be sent out within four months of the year end.

Consistently late budgeting may suggest the landlord is setting the budget on the basis of the actual cost of the preceding year rather than carry out proper zero based budgeting each year. This can often lead to large variances at the year end.

Late certificates are also worrying, suggesting the landlord or managing agent's accounts procedures need improving.

Late certificates also delay the point at which the tenant is advised of any overspend, such balancing charges being normally collected with the next quarter's payment. Late certificates when there is an under spend means that any balancing credit due to the tenant is delayed. sometimes for many months.

Q. "Is the proposed replacement of the equipment in the building really
     necessary?"

A. All plant and fabric within the building should be checked annually and an assessment made of needed repairs. Depending on the wording of the lease, replacement should only be made when repair is uneconomic.

Although "economic life" is a useful planning tool, plant should not be replaced just because it has reached a particular age. All fabric and plant should be regularly checked for its condition and a schedule of condition updated. The annual schedule should be discussed with the tenants and agreement sought on how to proceed. 

Q. "Why shouldn't I be happy that my service charges have not increased
     this year"

A. During economic downturns, landlords may defer or delay refurbishment of some fabric or equipment in the building. This is particularly likely where there are voids in the building and the landlord has to pay the service charge for those void areas himself.

OSCAR 2010 noted that "the cost of fabric repairs and maintenance has reduced, particularly in non air conditioned offices and lift maintenance has remained largely unchanged since 2007".

Delays to necessary maintenance of either the building's fabric or equipment can have serious consequences leading to faster deterioration of the building and its equipment, greater likelihood of equipment breakdown or failure and consequently higher costs of eventual repair.

Tenants should be consulted on any proposal to defer maintenance or refurbishment.