Shopping centres falling short on service charge compliance

Many of the profession’s standards for managing and administering shopping centre service charges are still not measured or enforced, according to the latest findings from Bellrock Real Estate. Bellrock’s annual Service Charge Operating Report for shopping centres showed there was “slow” improvement year-on-year from landlords and managing agents in adopting the RICS’s 16 accounting requirements for the sector in 2023. The figures were derived from a sample size of 42 centres. When assessing those 42 service charge certificates against the metrics in the RICS Professional Standard, researchers found the mean compliance ranking per certificate stood at 11.8 out of 16 for 2023, edging up from 11.1 in the previous year. While researchers said it was “difficult to generalise” on the back of a small sample, it was “clear” that compliance levels varied. Only three documents (7.1%) complied with all 16 requirements, while all complied with at least three. Some 83% of documents complied with 10 or more metrics, compared with 66% in 2022. Meanwhile, 85.7% complied with eight or more metrics, compared with 74% in the previous year, and just 4.8% complied with four or fewer of the requirements analysed, shrinking from 10%. Bellrock said the report, which was independently reviewed by the Metropolitan State University of Denver, highlighted a greater need for transparency and compliance within the UK’s shopping centre sector. The firm said management practice across the commercial property sector can be significantly improved, and that more transparent accounting could provide greater clarity in service charge auditing and increase the value it adds. It also suggested that reforms in surveyor training could bring more broadly qualified people into the industry from day one. Researchers said in the report: “Most managing parties are trying hard to improve the relevance, representational faithfulness, and comparability of information contained within service charge accounts. However, for many, there is work to be done to meet both the mandatory and “best practice” requirements contained in the [RICS] Professional Standard. “Year-end accounting reconciliation certificates for UK shopping centres continue to grow in length but lack comparability, due to differences in presentation and the omission of key information about accounting principles and policies. “The annual service charge accounts should present critical and comparable accounting information about service charge expenditure in a ‘RICS compliant’ manner that embodies best practice, and the industry is not there yet.” The research, which compared 89 of the UK’s 100 largest shopping centres, also found that occupiers in London pay just under 13% more than tenants in the rest of the UK, a narrower differential in the median figures than in 2022 (30%). Bellrock Real Estate head of occupier services Russell Heath said: “It seems clear from our research that compliance continues to represent something of a challenge to the industry. “I would encourage the RICS to seize the initiative in the forthcoming edition of the RICS Professional Standard by taking further positive steps to support greater transparency and compliance.” To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews