Real estate industry standards for rent and service charge collection
Remit Consulting has, as part of its biennial REMark survey, been collating and analysing data on the volume of collection of rent and service charge in the UK since 2010. This important study has allowed property managers, asset managers and investors to benchmark their performance and gauge it against other real estate businesses.
While REMark studies several aspects of property and asset management (such as staffing levels and the total value of assets under management), the statistics regarding the collection rates of rent and service charge have always been central to the analysis. The importance of the research into rent and service charge collection was underlined during the Covid-19 pandemic when Remit Consulting was able to reveal to the UK Government and the wider business community, the scale of the challenges faced by the property market.
Working alongside the British Property Federation, the RICS, Revo, the Agents’ Advisory Group, and other members of the Property Industry Alliance (PIA), Remit Consulting analysed the collection of rent and service charge by the country's largest property management firms from the beginning of the first national lockdown in March 2020. The team’s analysis involves data from around 125,000 leases on over 31,000 prime commercial property investment properties across the UK.
The reputation of Remit Consulting’s research into the subject has led to widespread adoption of the metrics used within REMark, which are now considered to be the industry standard on rent and service charge collection by many of the major property management companies and institutional investors.
Frequently Asked Questions
‘Collectable’ is defined as all rent or service charge due as at the Quarter day, less any sums of money excluded from the collection, due to:
- Tenant liquidation or receivership;
- Agreed payment plans;
- Void or empty properties where the landlord covers the costs;
- Sums the landlord has elected not to collect owing to disputes or other issues.
The service charge is a contribution from the tenant towards the costs of maintaining the land and buildings, and can only be used by the landlord for that purpose. Disputes leading to non-payment of some, or all, of a service charge usually arise when the landlord and the tenant disagree on either the sums to be expended on maintenance, or the management of the service charge itself.
Rent is payable by the tenant to the landlord, in exchange for the exclusive right to occupy a property. Disputes over payment of rent usually occur when the tenant does not believe that the landlord has upheld its obligations in the lease, such as to insure or maintain the fabric of the building. A landlord may be willing to accept reduced rent, to reflect particular circumstances affecting the tenant, as has been the case in the Covid-19 pandemic.
When a business encounters financial difficulties, it has the option to close, or to try to continue operating.
A CVA allows a business to settle its debts by paying a proportion of the total sum that it may owe to its creditors (including landlords), while continuing to operate. This may include alternative arrangements with creditors regarding payment of debts including rent and service charge. Sometimes, a tenant CVA may result in the surrender of one or more leases.
A liquidation is when the business is closed, its assets are sold and the proceeds used to pay off any debt. Where the business has a lease which has some value, it may assign it, or surrender it to the landlord, in return for a premium to pay other debts, or, if the lease has no value it, surrender it.
A 'void property' is one that does not have a tenant, but that is capable of being income producing should it be let.
If a tenant agrees a concession or a payment schedule with the landlord which is different from that set out in the lease, these new dates and amounts will become the ‘collectable rent’, reverting to the original lease terms once the payment plan is complete.
In our Covid-19 version of REMark, we have asked additional questions about concessions to improve our understanding of the impact these are having on income.
A unit is the physical space being occupied, whilst the lease is the contract permitting occupation. It is often the case that a portfolio will have slightly more units than leases, as some of the units will be void with no current leases, although in a healthy property market, one would hope the difference between the two figures would be small.
When asking about the size of the portfolio we have historically used the term ‘lease’ to understand this, rather than ‘unit’. This is for two reasons:
The other questions in the survey are centred around questions relating to the management of leases (rent collection and service charge performance), and not the management of units (maintenance and security). Thus we can compare the answers, like for like;
We now have an extensive database of previous results based on ‘leases’ against which to benchmark.