Service charges under minute scrutiny | KPMG | CZ
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Service charges under minute scrutiny

Service charges under minute scrutiny

“That’s for heating, housekeeping, security, maintenance, marketing and other items…” that may just be the answer given by a shopping centre representative to tenants inquiries as to what all is included in their monthly service charge payments. In other words, included are costs connected to the operation of the shopping centre (the common areas) which are paid by tenants. Usually, service charges can be from EUR 5 to EUR 10 per rented square meter per month, depending on the location of the shopping mall and its performance (translating into 10–15 % of net rent). Most often, service charges also include fees for the marketing activities of the centre, but in some cases, this is invoiced separately at EUR 1 to EUR 3 per square meter monthly.

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The level of service charges has remained relatively stable in the last couple of years. Declining energy costs have been off-set by growing marketing fees and other items. Shopping centre owners tell us that no dramatic increases or decreases are being planned. In the majority of cases, retail tenants pay these charges in the form of advances, which in the following year are settled against the actual expenses incurred by the landlord. In the past, it was common that service charges were considered to be non-accountable expenses and hence fixed.

Currently, we are seeing a growing demand by tenants to verify to actual costs incurred by their shopping centre landlord and the invoiced amounts of their service charges. Increasingly, merchants are comparing the fees charged by different centres are wondering why they are paying different amounts for identical stores in Prague and in, let’s say, Ostrava.

Hence, shopping centres are presenting their invoices for housekeeping, for International Children’s Day celebrations (organised as part of the centre’s marketing activities), maintenance, energy, etc., and demonstrating how specific charges are divvied among individual tenants. These, either themselves or represented by their advisors and auditors check, calculate and approve. Now, a small-sized shopping centre will have 80–100 tenants, with the big malls often having 220 or more. If only a fifth of these asked to see all invoices and other documents, the administrative burden on landlords would indeed be extremely time- consuming. Shopping centres have thus started to engage auditors to verify their service charge calculations and the expenses connected with them, and to subsequently inform the tenants of their audit results. 

In closing I would like to point out that for merchants the overall rental costs for their space in a shopping centre is much more important than the amount of the individual cost items, as any managerial decisions are most likely made with an eye on occupancy costs, or the total of all expenses the tenant pays for their retail space in relation to sales. In general, this ratio lies 15 % and differs depending on the retailers’ segment – a trendy clothes retailer’s occupancy costs will not be the same as those of an electronics store or a grocery chain.

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