MORICON’s approach to service charge consultancy is deeply anchored in understanding the hospitality aspect in residences as well as the demands on pre- and post opening operations.
Service Charge Drivers
The typical drivers for your budget are the usual “suspects”, based on their percentage of the total budget:
– Staffing Cost – typically the lion share
– Utility Consumption
– Insurance and any operating licenses / fees
– Facility management & preventive maintenance
– Management Fees
– VAT (depending on your operating structure/leasehold agreement/management contract)
We develop and establish a clear vison on the operational requirements at the beginning of the service charge consultancy planning process. This would follow a three-step approach based on workshops and fact-finding sessions with us.
Firstly: A clear vision on how you will run and manage the building after practical completion should be established as benchmark for all further decisions – think of a guiding compass en-route to practical completion. This includes amongst others, a leasehold contract review as well as discussions around your management structure.
Secondly: How much staffing is required, in what capacity etc. This mandates a thorough understanding from all involved parties of what the result will look like: namely designers, architects and the developer. The staffing guide will include the creation of a service narrative based on the vision of the client on how the project will be operate after practical completion.
Thirdly: This also includes how you manage the project later, i.e. agency staffing, self-management or part of an integrated branded management platform.
This next stage in the service charge consultancy process is deciding the utility and operating costs for the building. Although, this is a bit more challenging as the exact numbers are only available in RIBA stages 3 and 4 with the start of the technical design and procurement process. However, at this stage a lot of the information is available from within the planning phase. With this ongoing intelligence, you can estimate a reasonably accurate model. In the end, the figures are substantiated when the actual asset register is available.
FACILITY MANAGEMENT / PREVENTIVE MAINTENANCE
Facility management is another complex number in this process as there are several “unknowns” here. To begin with, knowing what M & E equipment your team uses allows you to plan. Following that, finding out what amount of work is required to manage the daily operation is crucial. Lastly, frequent visits to the building and seeing how the installation progresses allows us to calculate best what needs to be done, by whom and at what level of service.
Estimating the numbers early in the project requires collaboration across your teams; we facilitate this progress throughout the service charge consultancy mandate. In the end, a massive surprise should not occur at the completion point, and a manageable figure is on the table that works for all, the developer, the management company, and the tenants.
Whether you manage the building or outsource the contract, this activity will most likely incur a management fee. We will assist if so required, in your decision making. However, how to manage the building offers always two possibilities: self-management or third-party contract. In the first instance, if you operate the facility, you can apply a discounted or total management fee, depending on your requirements. In the latter instance, any third-party management company charges the total amount. Those fees are typically around 8% to 10% of the budget.
Finally, VAT: is your service provision (staffing) VAT-able or are the colleagues employed by the building and therefore their services VAT-free? As before, you must answer this question at the very beginning of the project. Several variations exist, and your corporate legal and tax advisor team are the correct routes to establish the appropriate structure. This is one of the most challenging sections of the service charge consultancy process as the outcome influences the budget for years.
MORICON follows strictly the rules of the RICS Service Charge Residential management code (currently 3rd edition). Our clients value our knowledge for hospitality services, operations, budgeting, real estate matters plus the ability to interconnect the various suppliers for the best outcome.