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Charities are warned to be aware of extra building costs

Posted: 25th June 2020

Third sector leaders would benefit from having honest conversations with landlords about financial pressures caused by Covid-19 pandemic 

Kenny Gray is a Partner in Lindsays’ Commercial Property team and is experienced in advising our charity and third sector clients.  In this article for Third Force News he urges charity leaders not to delay critical conversations with landlords as they try to manage the financial fallout from the coronavirus crisis, lawyers have warned.

And leaders are being urged to check the detail of tenancy agreements so they are not hit with unexpected costs when buildings reopen as lockdown measures ease.

Charities grappling with an unprecedented collapse in income need to be especially vigilant about service charges linked to buildings they share with others as they plan towards staff returning to work in them. 

Kenny Gray said: “We all know that charities have taken some considerable financial hits as the Covid-19 pandemic has wiped out the vast majority of their fundraising, at a time when the work carried out by many of them has never been needed more.

“We are generally encouraging those who foresee problems in paying their rent to speak to their landlords as soon as issues become evident. These conversations may not be easy, but they do increase the chances of both sides being able to reach a sensible agreement on the best way forward. Landlords will appreciate honesty up-front rather than a payment date being missed.

“But, while rent may be the biggest outlay, it’s not the only one to consider. Charities which share buildings with other organisations – of which there are a great many – may find themselves with extra service charges to pay because of the additional costs landlords face in ensuring their properties comply with public health rules. At a time when finances are tighter than ever for charities, the impact of these costs cannot be overlooked.”

In Scotland, non-essential offices are due to begin reopening in phase three of First Minister Nicola Sturgeon’s route map out of lockdown, expected from July 9. Charities and businesses are planning for how that will be done.

As well as the general social distancing and hand hygiene issues every organisation must implement, operators of multi-occupancy buildings – in which many charities lease premises – have also to consider the management and safety of common areas and liability for the cost of it.

This will involve landlords increasing or adding common services such as more frequent clearing of common areas and providing extra supplies of soap, managing physical access to public areas such as staircases, lifts, toilets, meeting rooms and shared kitchen facilities and creating the likes of extra bicycle rack spaces in response to restrictions on public transport use.

Lindsays, which has offices in Edinburgh, Glasgow and Dundee, is dealing with enquiries from landlords and tenants about whether additional costs can be offset through service charges in contracts.

Kenny added: “A responsible landlord will want to provide safe common areas for tenants and their visitors or customers.

“If the lease permits the landlord to charge for services provided in accordance with ‘good estate management’, which is common, the landlord could in principle pass the costs on to tenants.

“If a tenant’s liabilities are limited it is possible the lease frees the tenant from the cost of specific services and/or puts an upper limit on how much service charge a tenant is obliged to pay.

“Both sides should review their leases to help their cost-planning. We would urge each side to check their obligations and speak to each other as soon as possible so that issues can be ironed out to reduce the risk of last-minute.”

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