Cost-Benefit Analysis

Understanding the challenges and responsibilities of property ownership

by Laura Evans

The convenience of property ownership is hampered mainly by the endless list of rates, taxes and cost. Property owners are frequently at the mercy of government regulations for their environment and the costs that accrue with the responsibility of keeping the property in optimal condition.

Responsibilities increase when land ownership is attached to the duty of being a landlord. Having to constantly ensure tenants get their rents’ worth might be as tedious as trying to ensure that government regulations are adhered to. With the burdens of inspecting the property as often as possible and deciding whether a repair or improvement is necessary, property owners are easily overwhelmed with costs, which affects the rental rates.

In the past few years, there has been an increased demand for better housing conditions and modernised amenities. Tenants seek accommodations that shelter and provide them with the luxuries they deem necessary. This growing trend has imposed another duty on landlords: the burden of seeking out developers who understand the housing regulations that property owners must adhere to and provide tenants with the luxury they are paying for.

The amenities demanded by tenants also come with the responsibility of repairs and maintenance. Owners of properties with these amenities must stay in contact with repair and maintenance companies, like RJ Lift Company, to ensure they are not only well installed but also well managed in case of faults.

How Service Charges Apply

To keep up with the variety of repairs and maintenance, property owners have to bear certain costs, which are usually not included in the rents paid by their tenants. These property owners must put adequate consideration into the comfort of their tenants and the cost implications of the desired comfort.

Service charges have become necessary for property owners who intend to satisfy their tenants. The Royal Institute of Chartered Surveyors (RICS) says, “Service charges deal with the costs of servicing and operating a property to comply with the landlord lease obligations for the provision of service.”

The goal of the service charge arrangement is to help the owners recover the costs that have or will accrue in the case of repairs or servicing of the property. The service charge includes reasonable costs of maintenance, repairs and replacement done to the property. This helps to save tenants the burden of having to do the repairs themselves or incur more costs when these repairs go wrong.

However, the necessity of service charges makes it expedient for property owners and their tenants to reach a consensus on apportioning the costs. Some legislations and association codes provide recommendations on how best to split these bills, yet the most central agreement they all have is that the lease must include a clause requiring the tenant to pay service charges.

Recent case laws also recommend that in their attempt to recover the costs incurred during these servicing and repairs, property owners must be able to justify the necessity of the work and the fact that they considered the tenants while making those repairs.

Following legal stipulations from recent court precedents, property owners provide service charge budgets for their tenants to accredit the justification and transparency involved in the repairs. RICS also recommends a Service Charge Reconciliation to help both the property owners and their tenants understand the arrears and allotment of their costs.

What Property Owners Want From Service Charges

As stated above, lease clauses must provide for service charges on repairs and maintenance, but they do not involve improvements. While tenants will gladly pay for the convenience they enjoy from amenities and the maintenance required, property owners are usually left to cater the cost of whatever improvement they deem necessary.

Most property owners forgo improvements until necessary, as the regulations on service charges would not allow them to recover those costs. The recommendation for owners who would like to recover these costs from their tenants is to adopt a sinking fund that would help recover costs from payments made by tenants.

Property owners could always require service charges to maintain the amenities enjoyed by their tenants, but it would never really be sufficient unless it covers all the costs incurred in their bid to maintain the best housing standards.