Service Charge Code – Security
Published: 22 February, 2012
Shopping Centre is taking a look at the different components of the second edition of the Service Charge Code, which aims to provide the framework for better and more transparent service charge practices. This month, Sean Kelly looks at security
In October 2011, the British Retail Consortium’s director general Stephen Robertson highlighted that crime cost the industry £1.1bn annually, which equates to 52,000 full-time retail jobs.
Whether due to terrorism concerns, increased shoplifting and shrinkage or potential social issues, the issue of services charges for security is not, perhaps, as initially contentious as it might be. However security can account for a large portion of a tenant’s service charge – meaning that retail and leisure tenants will continue to take considerable interest in them as part of the service charge budget.
Paul Bagust, associate director at the RICS, points out that the updated code is intended to help landlords and tenants both better understand - and more effectively resolve - service charge issues that have previously plagued the industry.
“With regards to improvements or replacement of equipment the general rule is that initial provision is funded by the owner, however in some instances it may become part of the service charge,” Bagust points out. “For example, installing a CCTV system might be expensive, but it could reduce the costs of manned security services and help to reduce service charges.
“In this instance the landlord might argue that the equipment should be paid for by the occupier as it reduces operating costs,” he said. “There may also be instances in properties such as a shopping centre where enhanced security is required and landlords would expect the occupier to contribute through the service charge provided the lease so allows.”
Maintaining some flexibility may be a factor to consider in the security provision, according to Jeanette Chalmers, senior associate in the real estate team at national law firm Dundas & Wilson.
“The Occupy movement and UKUncut protests have led to an increased focus by landlords and tenants on the security or their properties,” she said. “In some cases, this means more security staff are required than may have been envisaged under old leases. For example, some shopping centre leases may refer to security personnel being provided by landlords, but may place a cap on the number of personnel which the landlord is entitled to employ.”
Chalmers believes that, even with older leases, the new edition of the code can play an assisting role.
“The code cannot override the provisions of existing leases, but says that existing service charge clauses should be interpreted as far as possible in line with the principles of the code,” she says. “Often a landlord will have discretion to provide such security measures as it considers appropriate for the operation of the centre, but what about ‘ramped up’ security needed for events such as the Olympics – does a landlord have a right to introduce increased measures to address perceived risks brought about by events out-with the shopping centre? In most cases, the answer will be yes, but landlords who keep tenants advised are likely to minimise the risk of disputes.”
Among factors centre owners/managers may want to consider is whether they can demonstrate value for money through greater partnership with security contractors, according to Lance Stanbury, MD of UK-based Mall Management Solutions.
Stanbury believes tenants increasingly expect to see partnership strategies developed between mall managers and service providers that achieve specific goals such as crime reduction.
“While centre managers operate a mall on a day-by-day basis, security contract staff operate it minute-by-minute and through better strategic partnerships which include intensive training, contractors can deliver better value for money to tenants in many areas such as reducing theft or damage,” he said.
Stanbury also cautioned managing agents against the false economy of simply re-tendering security services to achieve the lowest price. He points out this achieves little more than squeezing the contractor’s margins and abilities. He believes better quality savings could be created through long-term partnerships.
Stanbury concludes: “Security costs can total up to a third of the service charge for some shopping centres and security staff are involved in so many operational aspects of mall management; from crime reduction to maintenance or from customer service to car park management. Imaginative investment of the service charge into partnership strategies which improve these operational challenges can help deliver an improved return on the tenants’ investment into the service.”
Case study
If a challenge was what Alan Wiggan wanted when he left Royal Bank of Scotland and joined Capital & Regional in 2005 as the national facilities manager, then he certainly got it.
Wiggan who oversees service charge services procurement and acts as the contract manager alongside colleagues who provide technical input, immediately embarked on a corporate journey to review matters and install best practice.
“At the time I joined C&R had 23 shopping centres with 13 different security service providers (and 17 different cleaning providers) plus in-house providers,” he recalled. “There were varying standards and practices. The costs varied enormously.”
The upshot was the creation of a single security contract in 2009 with security company VSG placing the winning tender. The process resulted in a saving of over 3 per cent based on like-for-like manning levels, plus the additional benefit of a bespoke training package for C&R.
“We have sought to find partnerships with good quality service companies who specialise in the shopping centre environment and, in this case, who understood what security in shopping centres ‘looked like’,” Wiggan said. “That’s how the contract with VSG started.”
Wiggan says that C&R has sought to ensure the contract really makes sense for both parties.
“We both understand what the costs are to run these operations,” he said. “We work to ensure communication, quality, and that training for the security staff is there. It’s worth noting that a lot of suppliers out there aren’t happy with some of their clients – they don’t pay on time and they face constant pressure to manage down costs. That affects quality. The issue is to work with the supplier to deliver a great quality service that benefits the customer –in our case our customers include not just shoppers but our retailers and the other operators in our centres.”
A key part of that was to secure stability of staff and training.
“There are ‘costs’ to low-quality or high turnover of staff,” he says. “Shopping centres take our personnel about a year to truly know properly – not just the building, but the retailers and the local characters. Security is front-of-house – first and foremost they are security and are there to provide a safe and enjoyable shopping experience. But our officers regularly link with each of our retailers and also do health & safety checks. What we have done with VSG was to develop a bespoke training package that is multi-faceted in building up the skills such as first-aid training. Our security personnel have saved quite a few lives over the years now.”
Three years on and Capital & Regional’s portfolio comprises just nine centres. The service-level contract, which includes provisions to measure performance against KPIs, has been written to adapt with such changes, Wiggan says, noting that VSG has continued to maintain contracts at many of the sold centres.
But perhaps the real proof came at the start of this month when C&R had a built-in break clause option with VSG (which is owned by Compass Group). C&R has chosen to continue the contract for another two years before re-tendering.
“It’s about creating a partnership,” Wiggan says. “Make those relationships work for everybody.”
