Covid headaches for property managers around service fees
PROPERTY management is a specialised service that rarely makes the headlines, but is always working away in the background, keeping developments going and maximising their value to landlords and tenants. But managing property means spending money, on security, cleaning, maintenance, etc, so what happens when businesses are shut down by a pandemic?
Jerome O’Connor, a service charge specialist with Mansard Property Consultants, said the shutdown in mid-March, came at the worst possible time, in that the first quarter service charges were largely spent and some tenants had not paid rent and service charges due from April 1.
However, he said, most costs continued to be incurred, even though most premises were closed. For example, in many shopping centres, supermarkets and pharmacies remained open so car parks still had to be run and security maintained.
Some savings were made, but were offset by the costs incurred in extra cleaning, sanitising stations and extra staff to monitor queueing.
Since many businesses re-opened in June, Mr O’Connor says service charges are being paid in most cases, and landlords are taking different stances on outstanding rent, ranging from doing deals to insisting on full-payment. However, it’s vital to ensure that service charge arrears do not lead to the development suffering.
A forced cutting-back of services, such as cleaning and maintenance, will see the development deteriorate, footfall reduce, and tenants’ businesses adversely affected, which makes it even more difficult to collect arrears.
To avoid a downward spiral, the landlord may have to temporarily fund the shortfall to protect the value of their investment.
Mr O’Connor says intensive communication with tenants is important in finding solutions. “At the end of the day, you need to make sure that the tenant is still there in six months,” he said.
A helpful development in this is the adoption by the Society of Chartered Surveyors Ireland (SCSI) of the Professional Statement for Service Charges in Commercial Property, which became mandatory for surveyors in April. The SCSI formed a working group made up of managing agents and some tenants, to “localise” these rules for Ireland. The rules reinforce the need for professionals involved in managing service charges to perform their duties with professional diligence, integrity and impartiality. The new requirements formalise a lot of what is already best practice and common sense.
Mr O’Connor said one outcome from the working-group is the importance of absolute transparency with tenants on the apportionment of service charges: “The more information tenants have on how they are being charged, the better the results.”
A sensible development is the move to incorporate arbitrators and “alternative dispute resolution”, instead of rushing to the courts to solve disputes. Mr O’Connor said these provisions are already appearing in new leases, and many landlords now require their agents to comply with the code. Indeed, he has acted as an expert witness in several cases over service charge disputes.
Mr O’Connor said agents are on a “steep learning curve” in handling pandemic issues, and the focus now is on making buildings safe, so that staff are happy to return to work.