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Service charge caps

17th January 2014

Service charge caps

As all good property professionals will do, Morgan Pryce always advise their clients acquiring office space in Central London that they should seek a cap on their service charge which are usually linked to RPI rising annually. The reason for this is to protect the ingoing tenant from being stung further down the line in years to come as most leases today are 5-10 years long. If the landlord needs to spend money on the building for example, repair the roof or replace the roof then he is able to charge the cost of this to the tenants in the building if they do not have service charge caps. However, if you have a service charge cap in place you do not have to pay above the level of the cap.

It is particularly important to have a cap when taking a lease in a building which is in a second hand condition as it is more likely there will be costly problems with building. It is though becoming harder and harder to achieve service charge caps on Central London office space as it becomes a more of a landlord biased market with supply decreasing and demand for office space picking up. This is especially true on newly refurbished offices when everything is new and has warranties. 

The reason that the landlords are reluctant to give away service charge caps, other than the obvious one of not being able to charge the tenants for works they do to the building above a certain level, is because it can have a negative impact on the investment value of the building. The reason being is that a prospective purchaser will see any works in the future that they might do as capital cost rather than being charged to the tenants.

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.

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