UK Real Estate Update - Service Charge And Empty Rates

In the prevailing economic conditions tenants will review and

consider the terms of their leases more closely than perhaps was

the case previously, trying to find ways to reduce liabilities

attaching to their occupation of their properties. Nadeem Khan and

Melissa Moyle explain the implications of a recent High Court

decision dealing with service charge. They also look at how

tenants in administration can benefit from the exclusion to pay

business rates.

Service Charge

In the recent case of Boots UK Limited v Trafford Centre Limited

the High Court held that the landlord could pass on the cost of

entertainments, Christmas decorations, a Christmas grotto and a

large permanent television screen to its shopping centre tenants

via the service charge. The court held that all these items were

each a facility, an amenity or an attraction, rather than a form of

promotion of the shopping centre and therefore the entire cost was

to be included in the ordinary service charge with no contribution

from the landlord. In contrast, had these items been classified as

a promotion, then the cost of providing them would have had to be

shared between the landlord and the tenant.

Although the RICS Service Charge Code recognises that

promotional costs should be shared, the Code is voluntary and does

not override the express provisions of a lease already in place on

1 April 2007. A landlord's primary aim is to achieve a clear

rent by recovering all of its running costs from the tenants via

the service charge. Landlords and tenants need to consider

carefully how far a "sharing promotion costs" provision

extends. If the parties intend to share the cost of facilities,

amenities or attractions, the lease should provide for this

explicitly.

Empty Property Rates

On 1 April 2008 new regulations came into force (The

Non-Domestic Rating (Unoccupied Property) (England) Regulations

2008) which extend the exclusion from the obligation to pay

non-domestic rates in respect of unoccupied premises to companies

in administration or subject to an administration order. In

addition to premises which are vacant, premises that are only used

for the storage of plant, machinery or equipment used when the

premises were last in use are also treated as unoccupied for the

purpose of the regulations.

The exemption to pay rates lasts for three months for offices

and retail properties and six months for industrial warehouse

premises. Consequently when a landlord regains possession of

premises...