A guide to commercial property management fees

Posted by Pall Mall Estates on 13th November 2019 -

There are several costs and charges with regards to general maintenance and upkeep of premises for commercial landlords. These are usually aimed to give tenants a safe and secure workplace but also for landlords to protect their investments.

This is the reason commercial tenants will often see management fees or service charges on their bills. In general, this kind of arrangement is often a point of tension between tenants and landlords, mostly because the two parties tend to differ in their views of what constitutes an acceptable state of improvement.

What is commercial service charge?

A commercial service charge is a fee that landlords can instruct their tenant to pay to cover the costs of upkeep and any repairs on the property. Naturally, said charges would usually be in regards to damage caused by the tenant, as well as general wear and tear over time.

The work included in a service charge will differ in each situation, however, a commercial tenant can commonly expect these charges to cover the following:

• General interior (or structural) repairs
• Cleaning (including communal areas)
• Refuse and recycling collection
• Central Heating
• CCTV security
• Air conditioning systems
• Insurance costs
• Property management fees - we’ll go into more detail on these later

It is only appropriate for commercial landlords to claim service charges to recover the costs associated with the maintenance and repairs on the premises. If there is a situation where larger repair work is necessary, landlords are required to give their tenants a range of contractor quotes to undertake the work. Then, only once the tenant and the landlord have agreed on the price, can any work be undergone.

 An introduction to property management fees

Such fees can be written as a separate line item in a commercial service charge. If a commercial landlord’s portfolio is too large to manage themselves, or they live far away they may employ an agent to manage their premises.

Property management firms would, in turn, charge a fee to landlords for this service, which some choose to recover through claiming it back from their tenant. There are a number of different types of property management fee structures use today, including:

• Fixed fee

Occasionally property management firms will charge landlords monthly, with a fixed price for their services. This allows landlords to have some clarity that there won’t be any surprise charges but it also makes it easy to factor into a tenant’s service charges.

• Revenue share

Some agents will prefer to ask landlords for a revenue share agreement. This involves taking an agreed percentage of the revenue generated by the landlord, rather than the rent being paid directly.

• Guaranteed rent

In certain cases, firms will agree to pay the landlord a fixed rent price and then the firm will be allowed to sublet the property and charge a higher rent - with their income being the difference between the two prices.

• Percentage of rent

Commercial landlords can sign a property management agreement, which allows the firm permission to rent out the premises on their behalf. The firm will, in turn, be allowed to collect the rent and handle the day-to-day management of the tenant as well as the property. They will typically take anything between 10-15% out of the monthly rent as their charge for this type of service.