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25 February 2005 PR 05/15

Service charge costs a serious problem says major new research

The thorny issue of service charges* were tackled head on last week when UK businesses learned that they have been getting a raw deal and the commercial property industry worked out how it is going to respond to the challenges.

An 18-month study undertaken by a team from Loughborough University Business School led by Dr John R. Calvert, and sponsored by service charge specialists Property Solutions, revealed that one-third of all UK service charge expenditure needs to be monitored, and in almost half the cases, investigated – raising a question mark over £942 million of controllable costs.

This research was unveiled at the annual OPD Conference taking place at Canary Wharf on 24 February – and coincided with the launch of the Royal Institution of Chartered Surveyors’ Tenant Satisfaction Index.

With almost 75% of businesses now occupying office space, the UK multi-let office market has grown to 637 million sq ft, with service charges costing occupiers over £3.25 billion.

The Loughborough University study, which began in 2003, covered five years of service charge data from 161 buildings comprising 15.5 million sq ft.

The key findings include:

A separate pilot study of 20 further buildings at the end of 2004 confirmed the conclusions of the Loughborough University Report. It found:

The first key recommendation is that the commercial property industry needs to unite and agree a strategy for consistently describing service charges to allow monitoring of existing service charges to take place.

The second key recommendation is that a body such as OPD should then collect the data to provide bench-marking of actual current charges.

The third key recommendation is that a study is needed into what service charges should be rather than what they have been. This involves looking at service levels and at suppliers of services, and thus enable a real negotiation between landlord and tenant to take place over what is provided.

* Service charges are the costs levied on commercial tenants for the provision of services within the common parts of buildings. These include security, cleaning, lighting, heating, reception, lifts, plant maintenance and refurbishment.


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Notes to editors

Loughborough has an established reputation for excellence in teaching and research, strong links with industry, and unrivalled sporting achievement. Assessments of teaching quality by the Quality Assurance Agency place Loughborough in the top flight of UK universities, and industry highlights Loughborough in its top five for graduate recruitment. Around 45% of the University’s income is for research. The University has been awarded four Queen’s Anniversary Prizes: for its collaboration with aerospace and automotive companies such as BAE Systems, Ford and Rolls Royce; for its work in developing countries; for pioneering research in optical engineering; and for its world-leading role in sports research, education and development.

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