ICSC - European Service Charge Guide

International Council
of Shopping Centers
European Service Charge Guide
1ab|e of Contents

1 Ld|tor|a| rev|ews............................................................................................... 3
2 Acknow|edgments............................................................................................ S
2.1 1he ICSC keta|| Asset Management Comm|ttee..................................................... S
2.2 ISCM, Mu|t| Ma|| Management ortuga| ............................................................... S
2.3 1he survey respondents ........................................................................................ 6
2.4 Ld|tor.................................................................................................................... 6
3 Lxecut|ve summary .......................................................................................... 7
4 1ypes of costs................................................................................................... 8
4.1 L|ectr|c|ty, gas, water and dra|nage....................................................................... 8
4.2 Secur|ty, c|ean|ng, ma|ntenance and |andscap|ng.................................................. 8
4.3 Waste ................................................................................................................... 8
4.4 roperty taxes ...................................................................................................... 9
4.S Centre management cost ...................................................................................... 9
4.6 roperty management cost, fac|||t|es management cost and management fees.... 9
4.7 Market|ng (budget and extra |and|ord contr|but|ons) and ma|| |ncome................. 9
S Serv|ce charge d|str|but|on, co||ect|on and accountab|||ty............................... 10
S.1 D|str|but|on and co||ect|on...................................................................................10
S.2 Accountab|||ty for year|y serv|ce charge...............................................................10
6 keserve fund .................................................................................................. 11
7 Insurance ....................................................................................................... 11
8 1ypes of extra costs (non-recoverab|e) ........................................................... 11
9 Most common serv|ce charge pract|ces |n Lurope........................................... 12
9.1 Most common costs.............................................................................................12
9.2 Most common serv|ce charges: d|str|but|on, co||ect|on and accountab|||ty ..........17
9.3 keserve fund........................................................................................................22
9.4 Insurance.............................................................................................................22
9.S Common costs add|t|ona| notes ...........................................................................22
10 Serv|ce charge d|str|but|on methods across Lurope...................................... 24
10.1 Austr|a...............................................................................................................24
10.2 8e|g|um .............................................................................................................2S
10.3 8u|gar|a .............................................................................................................26
10.4 1he Czech kepub||c ............................................................................................27
10.S Denmark............................................................................................................28
10.6 Lston|a...............................................................................................................29
10.7 I|n|and...............................................................................................................30
10.8 Irance................................................................................................................31
10.9 Germany............................................................................................................32
10.10 Greece.............................................................................................................33
10.11 nungary...........................................................................................................34
10.12 Ita|y.................................................................................................................3S
10.13 Latv|a ..............................................................................................................37
10.14 L|thuan|a .........................................................................................................38
10.1S Luxembourg ....................................................................................................39
10.16 1he Nether|ands ..............................................................................................40
International Council of Shopping Centers

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10.17 Norway............................................................................................................41
10.18 o|and.............................................................................................................42
10.19 ortuga|...........................................................................................................43
10.20 koman|a..........................................................................................................44
10.21 kuss|a..............................................................................................................4S
10.22 Serb|a..............................................................................................................46
10.23 S|ovak|a...........................................................................................................47
10.24 Spa|n ...............................................................................................................48
10.2S Sweden ...........................................................................................................49
10.26 1urkey .............................................................................................................S0
10.27 Un|ted k|ngdom ..............................................................................................S1
11 Susta|nab|||ty ............................................................................................... S3
11.1 Case study - Mu|t| Susta|nab|||ty Index..............................................................S3
12 Systems for reg|ster and process|ng the |nformat|on.................................... SS
12.1 Case study - Integrated System of Cperat|ona| Management Software (ISCM) .SS
13 Innovat|on and deve|opment ....................................................................... S6
13.1 Case study - Mu|t| Ma|| Management 8us|ness Schoo| - w||||ng to share ...........S6
14 Lth|cs and transparency ............................................................................... S7
1S Cert|f|ed compan|es - safety |n asset management ...................................... S8
1S.1 Case study - Iorum Mont|[o ISC 14001 Cert|f|cat|on 200S]2008 ........................S8
16 1est|mon|a|s................................................................................................. 60
16.1 Case study: 1urkey.............................................................................................60
16.2 Case study: k|p|erre-Sgc Shopp|ng Centres |n Lombardy, Ita|y ....................60
16.3 Case study: as|ng Arcaden: now our tenants benef|t from geotherma| energy.61
16.4 Case study: Serv|ce charge and waste management, Marse|||e Grand L|ttora|,
Irance Cor|o ..................................................................................................................63
16.S Case study: Wh|te kose Centre, Leeds, Un|ted k|ngdom.....................................64
16.6 Case study: My2e|| Shopp|ng Centre |n Irankfurt, Germany ...............................64
16.7 Case study: 1ak|ng advantage of the cr|s|s and demonstrat|ng partnersh|p w|th
tenants, Ie||c|a Shopp|ng Centre |n Ias|, koman|a ..........................................................6S
17 What next for cost effect|ve, reasonab|e and transparent serv|ce charges |n
shopp|ng centres |n Lurope?................................................................................. 66
18 Append|x ..................................................................................................... 67
18.1 1ab|e of I|gures .................................................................................................67


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1 Editorial reviews
Members of the International Council of Shopping Centers (ICSC) Retail Asset Management
Committee set out their thoughts below as to why this report is important to the industry.

Martyn Chase, Chairman, European Retail Sector Head, DTZ and
Chairman, ICSC Retail Asset Management Committee
Fairness and transparency in the management of services charges is essential, especially as
the majority of developers and shopping centre management companies as well as
increasing numbers of retailers operate cross border. Larger operators have clear service
charge guidelines which are understood and respected by their management and tenants.
However the service charge schedules of some, often smaller, operators across Europe may
not be as clear and our research showed that there is a great disparity in process and
management models across Europe.

This guide, written by the shopping centre industry for the industry, will help clarify an issue
that has always caused debate between landlords and tenants. Good landlords and
managers are already adopting these practices and others in the industry should strive to
meet them as well.

Ashley Blake, Head of Retail Portfolio Management, Land Securities
Good management of service charges is crucial to the performance of shopping centres
across Europe but is an area where there is often a large gap in performance between the
best and worst managers. This report aims to help the industry with a handy guide to how
service charges work across all 27 countries in Europe.

It does not aim to impose standardised service charge procedures as many European
countries have different market practices, legal requirements and traditions, but it does set out
the key good practices that the best landlords and managers should adopt. It also illuminates
these with case studies.

Landlords and managers who seek to adopt best practice on service charges will improve
their relationships with their tenants and the attractiveness of their centres both to retailers
and shoppers.


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Jan Kubek, Fund Manager, ING Real Estate
From time to time, in well established Western European markets but even more often in fast
or faster growing countries, we can see a certain immaturity of asset or property manager
approach towards service charge management. This is usually demonstrated by significant
unjustified or hard to explain annual increases in service charges, showing that these
managers do not care because the tenants are obliged to cover these costs, according to
contract. Those practices lead to defensive positions by tenants and to requests for caps on
service charge levels undermining the net rental income return, by questioning the division of
rent and service charges.

However, the final losers in this game remain landlords. At the end of a lease contract, the
tenant will recalculate the total accommodation costs and reflect higher service charges in a
future, agreed rental level. This means that if a service charge budget is not properly
managed, it might consume any expected rental growth and, therefore, future capital value
growth. Put simply, if a relatively high multiplier (15x or more) of achieved rent is used for
determination of value, the landlords are in reality losing much more than the tenants.

It is this fact that aligns tenant and landlords on proper and effective use and control of a
service charge budget. I hope that this report will help to promote this alignment and
contribute to easing of relationships which can, at times, be tense.

Antnio Matias Lopes, Managing Director Southern Europe, Multi Mall Management
Efficiency in service charges is one of the main priorities of management companies in their
role serving new shopping centres everyday, bringing value to owners, generating passion in
tenants and telling a new story to their customers every day. Product development is more
than technical quality control it is about the continuous improvement of clients satisfaction.

This guide will help to create a good understanding amongst all the players in the business,
creating conditions to establish better practices, fairness and transparency for service charge
costs, using case studies to show how best practice can help to standardise operational
quality.


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2 Acknowledgments
ICSC gratefully acknowledges the contributions of the following individuals to this report:
2.1 The ICSC Retail Asset Management Committee
Martyn Chase, Chairman, European Retail Sector Head, DTZ and Chairman, ICSC Retail
Asset Management Committee

Ashley Blake, Head of Portfolio Management, Land Securities

Mattias Bning, Chief Executive Officer, mfi Management fr Immobilien

Robert Bonwell, CEO EMEA Retail, Jones Lang LaSalle

Peter Bradley, Asset Management Director, Corio

Clemens Brenninkmeijer, Country Manager The Netherlands, Redevco

Michael Dessolain, CSO, Unibail Rodamco

Ben Grose, Head of Retail Asset Management

Prof. Dr. Filipa Fernandes MBA, Head of Research and Innovation,
SES Spar European Shopping Centers

Michael Flesch, Managing Director, MAB Development

Karsten Hinrichs, Managing Director ECE Projektmanagement

Jan Kubek, Fund Manager, ING Real Estate

Antnio Matias Lopes, Managing Director Southern Europe, Multi Mall Management

Allard Thiadens, Head of Department, Property & Asset Management, Cushman & Wakefield

Gontran Thring, Executive Vice President Asset Management, Klpierre-Sgc
2.2 ISOM, Multi Mall Management Portugal
Jos Barbosa, Regional Operations Manager, Multi Mall Management Portugal

Miguel Kreiseler, Centre Manager, Multi Mall Management Portugal

Carlos Miranda, Operations Manager Armazns do Chiado,
Multi Mall Management Portugal

Amrico Silva, Operations Manager Almada Forum, Multi Mall Management Portugal

Nelson Soares, Operations Manager Forum Montijo, Multi Mall Management Portugal


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2.3 The survey respondents
Austria Josip Kardun, Deputy Managing Director Development,
ECE Projektmanagement International
Belgium Jeroen V.M. Hafkamp, Chief Executive Office,
Shopping Center Management Services
Bulgaria zgr Yavuz, Managing Director, Investa Property Solutions
Czech Republic Jan Kubek, Fund Manager, ING Real Estate
Denmark Per Nyborg Thomsen, Director, ICP Denmark A/S
Estonia Mati Pops, Commercial Director, Baltic Operations, Citycon Oyj
Finland Tuire Nyberg, Managing Director, Ikano Retail Centres Finland Oy
France Bertrand Courtois-Suffit, Director General, Kharis Conseil
Germany Jochen Klemens, Associate Director, Head of Shopping Center
Management Germany, Jones Lang LaSalle
Christine Wegner, Head of Shopping Center Management Germany,
Jones Lang LaSalle
Greece Alexandra Dalagiorgou, Property Management Executive,
Acropole Charagionis S.A.
Hungary Judit Kiss Balatonin, Secretary General, Hungarian Council
of Shopping Centers
Italy Pietro Malaspina, Director, Institutional Relations, Sierra Developments Italy
S.r.l. Sonae Sierra Group
Latvia Mrcis Budevskis, Member of Board, Business Development
and Lease, Linstow Center Management SIA
Lithuania Rida Tamkovidait, Head of Letting Department,
Resolution Property Management
Luxembourg Jeroen V.M. Hafkamp, Chief Executive Officer,
Shopping Center Management Services
The Netherlands Franoise E.A. Dechesne, Director, MAB Development
Norway Sigbjrn Hoem, Country Manager, Steen & Strm
Poland Micha Muc, Property Management Finance Director, DTZ Management Polska
Portugal Pedro Teixeira, Secretary General, Associao Portuguesa de Centros
Comerciais
Romania Ali Ergun Ergen, Chief Executive Officer, Baneasa Developments SRL
Russia Natalia Oreshina, General Director, Art Properties
Serbia Jelena Gracan, Consultant, Retail Brokerage Services,
Colliers International
Slovakia Frantiek Paraka, Retail Services, Cushman & Wakefield
Property Services Slovakia
Spain M Victoria Gozlvez, Director, Asociacin Espaola de
Centros Comerciales
Sweden Peter Hallberg, Leasing Manager, Apotek Hjrtat
Turkey Avi Alkas, SCSM, SCMD, CLS, Chairman, Turkey, Jones Lang LaSalle, Turkey
United Kingdom Martyn Chase, Chairman, European Retail Sector Head, DTZ
Mike Davidson, Head of Retail Operations, Land Securities Properties
Table 1: Survey respondents
2.4 Editor
Richard Hammerton, Firstproof

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3 Executive summary
This report aims to present and analyse the main characteristics and issues relating to service
charges across Europe.

The guide details the most common practices in 27 European countries, with notes on each
country. Case studies are used to highlight good practice, with service charges in a number of
European countries based on their accepted service charge regimes.

Reasonableness and transparency in the management of services charges are essential and,
in this report, the main costs in the various service charge headings are covered, as well as
their significance within a budget.

The types, distribution, collection and accountability for service charges are also covered, as
well as reserve funds, insurance and types of extra costs (non-recoverable).

Sustainability is a key factor in the current market and is examined in a case study, as well as
systems for processing and registering information, innovation and development of
sustainable practices.

Recognition of the qualifications of property managers dealing with service charges is
imperative today, especially in the current economic climate, as properly qualified and/or
certified managers are essential to ensuring organised management regimes that provide
high service-level performance for those in the real estate and retail industry.

The key message of the report is that although service charge regimes vary from country to
country in Europe, there are key standards that should apply to all. These are:

Managers should manage the service charge in a reasonable, ethical and transparent way.
There should be open communication between managers and tenants throughout the
process. The manager should seek to achieve cost effectiveness for the services he provides,
subject to providing the quality of service delivery needed. The manager should seek to
provide the services in a sustainable way where appropriate. Service charges should be
managed by properly qualified professionals.

The ICSC Retail Asset Management Committee will continue to monitor service charges in
shopping centres and plans to update this report from time to time. It will consider the merits
of proposing a code of practice for service charges in shopping centres for the European
industry to adopt.

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4 Types of costs
The following breakdown allows us to identify and, depending on the situation in each
country, define what types of costs are included in service charge budgets. This list is not
exhaustive but describes the most important items.
4.1 Electricity, gas, water and drainage
The utilities are the major components of service charge budgets.

Electricity forms a major part of these expenses and is mainly used for lighting, heating and
cooling. Sometimes, in Europe for instance, electricity or gas may be sold by the owner to
the retailers with a margin, due to the fact that he transforms high voltage into a low one.
The water costs may include amounts related to sewage treatment systems.
Gas consumption is mainly related to heating water for general use and air conditioning.
4.2 Security, cleaning, maintenance and landscaping
The shared services such as security, cleaning, communal area repair and maintenance and
landscaping are the principal services provided for the regular day-to-day operation of the
shopping centre.

Usually, the costs from each category are largely dependent on the operational strategy and
the size of the resident team in each area. Normally, these services are provided by
specialised outsourcing companies.

The routines necessary for proper operation, conditioned by the specifics of each centre,
should be considered in defining the size and qualifications of the teams. The quality of
services provided and the economic constraints also need to be taken into account.

Contracts with service providers may be specific or more comprehensive. If the strategy is to
have more comprehensive contracts, an additional cost division may be proposed for the
price of different categories (staff, equipment, consumables and others). This way they
ensure that the increases are indexed to their respective cost and not to the general contract.
For example, if the human resource costs are increased by 10% by law, only this item is
increased, allowing the remainder to increase by an inflation rate of 2%.
4.3 Waste
Waste, as an independent cost (from cleaning or other), is related to its relative weight and
the possibility of incurring significant adjustments imposed by national or community
legislation.

An additional way to add value is to give management the ability to monitor the environmental
costs, to determine specific key performance indicators (KPIs) and implement best practices,
to enhance the environmental performance of the centre and to safeguard the financial return
associated with the recycling of various materials (paper, packaging, glass and others).


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4.4 Property taxes
Considering that each country has its own legislation relating to property taxes, these figures
should be treated differently and separately from the budget of common expenses.
4.5 Centre management cost
Because running a shopping centre is a complex business, a resident management team is
recommended for each project. These teams, whose size may vary according to the
company's strategy and centre size, are responsible for the proper management and
supervision of the operation and the direct monitoring of tenants and visitors.

The space reserved for these teams at the centre can be considered as a common space or
rented by the management company or landlords representative.
4.6 Property management cost, facilities management cost and
management fees
Property management cost is related to rent collection, tenant selection, tenants contract
management and other activities related to the landlord.

Facilities management consists of services relating to the operation of a building. Typically
this includes such activities such as maintenance, security or cleaning.

Usually the management fee is a percentage of the service charge cost. In order to create a
different type of incentive, some companies change to a fixed fee, which can include an extra
bonus for the service charges being well managed and under control, or related to the
generation of savings.
4.7 Marketing (budget and extra landlord contributions) and mall
income
As a malls performance depends on its reputation and attractiveness to visitors, it is usual to
define a specific marketing budget for advertising, marketing campaigns or events purposes.
This budget may be managed by a tenants association, the landlord/management or both.
In many cases, the landlord makes regular or discretionary contributions to this fund.

Revenue from extra mall income through the rental of temporary spaces in the common areas
of the centre can be returned to the service charges, or to the marketing budget or provide
additional income to the landlord.

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5 Service charge distribution, collection and accountability
5.1 Distribution and collection
The costs associated with the regular operation of a shopping centre, benefiting both the
stores and the visitors, are paid by the tenants located in the centre.

It is necessary to split the service charge costs between a centres tenants. The most
common method of apportioning the cost for each tenant is to divide the total cost by the
gross leasable area (GLA) corresponding to each store - a value proportional to its leasable
area.
Service charges are often weighted in order to attract the best, most relevant tenants, and
those will benefit the other tenants in the mall. The amount charged can be reduced partial or
totally, according to market practices or contractual agreement.

The costs of the service charges are divided by all tenants so, whenever there is a vacant
unit, it is necessary for deficits to be fully reimbursed by the landlord or spread amongst
tenants, according to local practice and contracts.

Payments for the service charges are usually made by the tenant in advance, monthly or
quarterly. In some cases they may be charged in the month to which they relate. These
amounts are usually invoiced in conjunction with fixed remuneration/rent.

As there is a lag between the issue of the invoice and payment, advance payments allow full
compliance with obligations with suppliers and service providers.
5.2 Accountability for yearly service charge
For most operators, it is common practice to present a service charge budget for approval by
the landlord or the tenants. The increasing amounts are often defined in the lease contract
and can rise with inflation. Usually the service charge costs are aligned with the management
strategy for the mall, namely quality levels and type of services to be provided through
common services.

The budgets are submitted in advance or, alternatively, with the presentation of accounts for
the previous year.

In several countries, it is common for the service charge reconciliation to be audited, internally
or externally, by independent entities.

Shortfalls from caps to tenants can arise, and they can either be fully covered by the landlord
or spread amongst tenants. When service charge costs are invoiced in advance, the banks
may pay interest on service charge accounts. This interest may be paid to service charge
accounts (sometimes offset against bank charges) or considered as extra (small) income for
the landlord.

For the landlord, the tendering of service contracts is a form of transparency and the
management company can ensure that it is paying the appropriate market prices for those
services.

A best practice guide or a set of principles for service charges issued by a professional
organisation also contributes to increase transparency and accountability.

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6 Reserve fund
In some countries it is common to manage a reserve fund that is used to meet any
unexpected costs that may arise in the future; this is primarily intended to address
unexpected costs or extraordinary works.
7 Insurance
In order to preserve the value of a property and to safeguard the interests of its various
stakeholders (tenants, owners, visitors and management) several approaches to insurance
policies may be possible. Insurance can cover anything from the cost of broken glass to the
full replacement of property and lost profits. Some countries may include property insurance
and/or the cost of an insurance premium for terrorism in the service charge cost.
8 Types of extra costs (non-recoverable)
In some countries it is common to prepare and submit to the landlord, a medium-term
investment plan. This plan typically includes costs for renovations or projects whose impact or
cost is high and needed by the property.

In non-recoverable cost we include all the costs that are specific and tenant-related and that
are invoiced directly from the supplier or invoiced later by the service charge management.
For example, if the shopping centre buys gas directly from the supplier and then uses part of
it for direct distribution to stores, all costs associated with individual consumption from the
tenants cannot be considered as a common cost.

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9 Most common service charge practices in Europe
At the beginning of 2011, ICSC undertook a survey of 27 European countries to identify the
most common service charge practices in our region. The findings presented are the result of
the statistical analysis of the raw data from the survey Best practices for service charges in
Europe which was developed by the ICSC Retail Asset Management Committee.
9.1 Most common costs
We can see that most costs associated with the service charges are recoverable from the
tenants.

Energy / Gas / Water Q20

Security Q21

Cleaning Q22

Maintenance Q24

Landscaping Q23

Property Taxes Q30

Centre Management Costs Q26

Property Management Q25

Facilities Management Q27

Sustainability Costs Q31

Building Insurance Q28

Terrorism Insurance costs Q29

Recoverable Non-recoverable Other
Table 2: Most common costs
9.1.1 Electricity, gas and water
In all countries, according to the survey, the costs of common electricity, gas and water
consumption are recoverable from the tenants. Notably, it was the only question in the survey
which returned the same answer from all participants.

Q1 Are common area electricity, gas and water costs normally
recoverable from tenants under the service charge?
Number of
countries
% of countries
Recoverable 27 100%
Non-recoverable 0 0%
Other 0 0%
Total responses 27 100%
Table 3: Common area electricity, gas and water costs

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9.1.2 Security, cleaning, maintenance and landscaping
Common security costs are recoverable from tenants in 26 countries, as are the costs of
cleaning common areas. Only in Sweden are these costs considered non-recoverable.
Common area repairs, maintenance and landscaping costs are recoverable in 25 countries.

Q2 Are common area security costs normally recoverable
from tenants under the service charge?
Number of
countries
% of countries
Recoverable 26 96%
Other 0 0%
Table 4: Common security costs

Q3 Are common area cleaning costs normally recoverable
Number of
countries
% of countries
Recoverable 26 96%
Other 0 0%
Table 5: Common area cleaning costs

Additionally, in Estonia, repairs are non-recoverable but maintenance is recoverable. Italian
law makes a distinction between ordinary and extraordinary maintenance; only ordinary
maintenance costs (those that include repairs) can be charged to tenants. In France these
costs are recoverable, except sometimes for very important repairs or investments (according
to lease contract clauses). If it is stipulated in the lease contract, maintenance can be
included as recoverable in Russia.

Q4 Are common area repairs and maintenance costs normally
Number of
countries
% of countries
Recoverable 25 92%
Other 1 4%
Table 6: Common area repairs and maintenance costs

The common landscaping cost is non-recoverable from tenants in Sweden and the
Netherlands. It tends to be recoverable in Russia, if it is not of a capital investment nature.

Q5 Are landscaping costs normally recoverable from tenants
under the service charge?
Number of
countries
% of countries
Recoverable 25 92%
Other 0 0%
Table 7: Landscaping costs

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9.1.3 Waste
The survey did not include a direct question concerning waste management. However, if we
assume that it is included in cleaning costs, we can say that waste cost is recoverable in 26
countries.

Q6 Are common area cleaning costs normally recoverable
Number of
countries
% of countries
Recoverable 26 96%
Other 0 0%
Table 8: Common area cleaning costs
9.1.4 Property taxes
The percentage of countries where property taxes are non-recoverable from tenants is about
37%. This includes Estonia, Greece, Italy, Latvia (some have triple net contracts), Lithuania,
the Netherlands, Norway, Portugal, Serbia and Turkey. In Spain these are non-recoverable
for anchor tenants; and there are also attempts to exclude them from the service charge
scope in Austria. In Russia, in the event that property tax levels are raised, then the service
charge can increase accordingly (some leases have this provision but some do not). The
tenants pay property taxes directly to the government in the UK.

Q7 Are property taxes normally recoverable from tenants
under the service charge?
Number of
countries
% of countries
Recoverable 16 59%
Other 1 4%
Table 9: Property taxes
9.1.5 Centre management cost
In Sweden and the Netherlands (except for the biggest centres) the centre management cost
is non-recoverable. In Germany it is recoverable if specified, up to a pre-defined amount.

Q8 Are site/centre management costs normally recoverable
Number of
countries
% of countries
Recoverable 24 89%
Other 1 4%
Table 10: Site/centre management costs

In the majority of countries (17) the centre management accommodation is treated as part of
the common area. In Denmark, Greece, Germany, Poland and the Czech Republic the
accommodation area is rented by the managing agent. In Belgium and Luxembourg it can
either be treated as a common area or rented by the managing agent/landlord. In Italy and
Russia it is usually provided by the landlord.

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Q9 What is the market practice for the treatment of costs for
the centre/site management accommodation?
Number of
countries
% of countries
Treated as common areas 17 62%
Rented by the managing agent/landlord's representative 5 19%
Other 5 19%
Table 11: Costs for the centre/site management accommodation
9.1.6 Property management cost, facilities management cost and
management fees
The property management cost is non-recoverable in Italy, the Netherlands, Portugal, Spain,
Sweden, Turkey and the United Kingdom. In Poland it depends on particular lease agreement
provisions and in France, according to the Conseil National des Centres Commerciaux
(CNCC) Charte des relations bailleurs locataires" or "Charter for good practices between
landlords and tenants", it depends (service charge management yes; marketing
management yes; rent collection no) even if a few landlords do. In Austria the main part
is recoverable and only the cost of services which are clearly for the landlord remain with the
landlord. In Russia these costs are also known as head office overheads.

Q10 Are property management costs (rent collection, tenant
management, etc.) normally recoverable from tenants under
the service charge?
Number of
countries
% of countries
Recoverable 16 59%
Other 4 15%
Table 12: Property management (rent collection, tenant management, etc.) costs

In 89% of the countries, the facilities management cost is recoverable from tenants, except for
Russia if it is capital in nature; and in Hungary, Norway and Sweden this cost is non-
recoverable.

Q11 Are facilities management costs normally recoverable
Number of
countries
% of countries
Recoverable 24 89%
Other 0 0%
Table 13: Facilities management costs

The management fee is a percentage of the service charge in Belgium, Denmark, France
(mostly a percentage, but more and more it is a fixed fee), Greece, Italy (percentage fees on
service charges can vary between 3% and 6%, inverse to the size of the service charge
budget; fixed fees are sometimes applied in small centres with limited rental income),
Luxembourg, the Netherlands, Norway, Portugal, Romania and the United Kingdom. In the
UK there is a growing trend for management fees to follow the RICS Code and be based on
the actual cost of managing services. A fixed fee is common in Bulgaria (some landlords pay
an extra bonus when the service charge budget is well managed and under control), Estonia,
Finland, Hungary, Serbia, Spain and Sweden. In Lithuania and Slovakia, its possible for the
management fee to be fixed or a percentage of the service charge. In Austria, the Czech
Republic and Poland it is based on rental income.


16
For Germany there is no separate management fee for the service charge, due to the contract
being on a monthly base, so it is on annual final account. In Russia it is included in the sum of
service charge. In Turkey it is a percentage of total rent or a combination of fixed minimum
against a percentage of rent and fixed fee.

The change from percentage to fixed fee is also in response to requests from tenants, in
order to provide a different incentive to the management company.

Q12 Is the management fee for the service charge usually
based on:
Number of
countries
% of countries
A fixed fee 8 30%
A percentage of the service charge 12 44%
Other 7 26%
Table 14: Management fee
9.1.7 Marketing (budget and extra landlord contributions) and mall
income
The market practice for administrating the marketing budget is through the service charge and
under the landlords control in 19 countries. In Belgium, Denmark, Finland, Hungary, Italy and
Latvia this is done both through the service charge and under the landlord/landlords agents
control and via a tenants association. In France, where a tenants association is more
common, a 2010 High Court decision declared that by law the obligation (through the lease
contract) is for a tenant to be a member of a tenants association. Therefore, more and more
marketing budgets are directly managed by landlords/management companies but it always
comes from the common service charges budget. In Austria, Germany and Luxembourg it is
via a tenants association.

Q13 What is the market practice for administrating the
marketing budget?
Number of
countries
% of countries
Through the service charge and under the landlord/landlords agent
control
19 70%
Via a tenants association 6 22%
Other 2 8%
Table 15: Administrating the marketing budget

Most landlords make contributions to the marketing budget. In 13 countries they do it on a
regular basis and in 13 in a discretionary way. Only in Luxembourg does the landlord not
contribute.

Q14 Do landlords usually contribute to the marketing budget
for the property?
Number of
countries
% of countries
Yes 13 48%
No 1 4%
Discretionary 13 48%
Table 16: Landlords usually contribute to the marketing budget


17
Mall income is fully credited back to the service charge in Estonia and Serbia. In the other
countries, it is retained by the landlord as additional income. In Bulgaria the kiosks also pay
service charges. In some cases in France, mall income is credited back to service charge. In
Germany it is paid to the tenants association, in most cases. In some Hungarian centres, it
can be given to the advertising budget. Both practices are applied more or less with the same
frequency in Italy; the centre management company receives a fee varying between 10% and
20% of mall income. In Latvia some entities consider 40% as the extra marketing contribution
and nearly 10% covers service charges.

Q15 What is the market practice for the treatment of mall
income (non-core income)?
Number of
countries
% of countries
Retained by the landlord as additional income 25 92%
Credited back to service charge 2 8%
Table 17: Mall income (non-core income)
9.1.8 Sustainability costs
Sustainability costs are recoverable in Bulgaria, Denmark, Finland, Hungary, Norway, Spain,
Turkey and the United Kingdom. They are considered non-recoverable in Austria, Belgium,
Estonia (green electricity is recoverable), Germany, Greece, Latvia, Lithuania, Luxembourg,
the Netherlands, Poland, Romania (capital expenditure is not included as a charge), Slovakia
and Sweden. In the Czech Republic and Serbia they have not been introduced yet. In France
they are a key matter under discussion between landlords and tenants through their own
associations. In Italy they are recoverable only if they can be classified as normal site or
building management costs. In Portugal, usually, current operational costs are recoverable
from tenants and investment costs are paid by the landlord/owner. In Russia they do not have
this issue, therefore it is not in the lease as a separate clause.

Q16 Are any costs related to sustainability recoverable from
tenants under the service charge?
Number of
countries
% of countries
Recoverable 8 30%
Other 6 22%
Table 18: Sustainability costs
9.2 Most common service charges: distribution, collection and
accountability
9.2.1 Distribution and collection
9.2.1.1 Market practices for apportioning service charges between tenants
In 24 countries the most common method of apportioning service charges between tenants is
the floor area basis. In Bulgaria sometimes it is complicated because of the leasing deals. In
Germany it is a fixed amount for anchors (capped rates above 1,000m
2
). In Hungary it can be
multiplied with a factor depending on the position and the type of the unit. In Latvia anchors
might get special deals, e.g. paying x% from full service charge, lowering their cost per
square metre. In Turkey, anchors and some preferred brands usually enjoy capped service
charges. In the United Kingdom there are still a significant number of centres that have
apportionment based on ratable values.


18
In Greece, property value per square metre is used and usually factors such as the specific
location of a store in a mall, the access to escalators/lifts, or the size of a store itself
compared to total GLA are taken into consideration to calculate the property value per square
metre for every store in a shopping centre. In Italy weighted GLA is common. In Poland fixed
percentage as well as floor area basis and capped or NIL service charge is the norm for
anchor tenants (especially hypermarkets).

Q17 What is the market practice for apportioning service
charges between tenants?
Number of
countries
% of countries
Floor area basis 24 89%
Other 3 11%
Table 19: Method of apportioning service charges
9.2.1.2 Weightings
The weighting is not used in service charge budgets in Austria, Germany (only by square
metres and participation), Latvia (anchors only/not as common as "for most contracts" but
"yes" as anchors in most properties), Russia, Serbia and Sweden.

Q18 Are weightings commonly used within shopping centre
service charges?
Number of
countries
% of countries
Yes 20 77%
No 6 23%
Table 20: Are weightings commonly used?
9.2.1.3 Vacant units cost
In Austria and Romania the shortfall resulting from vacant units is spread amongst the
tenants. In Portugal the shortfall is the responsibility of the landlord or the management
company and in Slovakia it depends on the contract but the cost is usually passed onto the
tenants. In the other countries, it is normally fully reimbursed by the landlord. In Russia it is
fully covered by landlord. In the Czech Republic it is mainly covered by landlords but a few
market major players spread the shortfall amongst the tenants. In Finland it can vary from site
to site.

Q19 What is the market practice for dealing with shortfalls to
the service charge from vacant units?
Number of
countries
% of countries
Shortfall fully reimbursed by landlord 22 81%
Shortfall spread amongst tenants 2 8%
Other 3 11%
Table 21: Shortfalls to the service charge from vacant units

19
9.2.1.4 Frequency of payments
In most countries the payments are made in advance monthly or quarterly. In Latvia, Estonia,
Germany and Russia they are made monthly in arrears.

Q20 What is the usual frequency of service charge payments
by tenants?
Number of
countries
% of countries
Quarterly in advance 9 36%
Monthly in advance 12 48%
Monthly in arrears 4 16%
Table 22: Frequency of service charge payments by tenants
9.2.2 Accountability for yearly service charges
9.2.2.1 Budget presentation and how soon it is provided

Austria, the Czech Republic, Germany, Hungary, Norway, Poland, Romania and Turkey do
not provide a budget report to tenants prior to the commencement of the service charge year.
The remaining countries present the report up to three months in advance. In Belgium the
report can be presented from three months before up to two months after.

Q21 Is a budget report provided to tenants prior to the
commencement of the service charge year?
Number of
countries
% of countries
Yes 19 70%
No 8 30%
Table 23: Budget report provided to tenants prior to the commencement of the service charge year

Q22 How soon prior to the start of the budget year is this provided?
Number
of
countries
% of countries
Between 1-3 months before 11 65%
Between 0-1 month before 6 29%
Other 2 6%
Table 24: How soon prior to the start of the budget year is this provided?
9.2.2.2 Service charge reconciliation to be audited
Service charges are externally audited in Bulgaria (usually by one of the big four accounting
firms), Finland, France (but not always; audits are either account audits or "professional"
audits to verify good practices, adherence to laws, etc.), Norway, Slovakia and Sweden.

Service charges are internally audited in Belgium (externally also), the Czech Republic (by
the landlord only), Denmark, Estonia (open books), Germany, Greece, Lithuania, Luxembourg
(externally also), Poland (in some cases the tenant has the right to check his service charge
costs), Serbia and Turkey.

In Austria, Italy, Latvia (open books), the Netherlands, Portugal, Romania (sometimes can be
externally audited) and Spain (except fund-owned condominiums) this is not a market
practice. In Russia it is market practice that this can be audited, but it is also market practice
that tenants refrain from the right to audit/review the correctness/fairness of the
reconciliations.


20
Q23 Is it market practice for the service charge reconciliation
to be audited?
Number of
countries
% of countries
Yes - externally audited 6 22%
Yes - internally audited 13 48%
No 8 30%
Table 25: Service charge reconciliation to be audited
9.2.2.3 Shortfalls and bank interest over service charge bank accounts
In Austria, Belgium, the Czech Republic, Estonia, Greece, Italy (in a majority of cases),
Luxembourg, the Netherlands, Romania, Serbia and Slovakia the deficit that arises from caps
granted to tenants is spread amongst tenants.

In the remaining countries it is fully reimbursed by the landlord. In some centres in Bulgaria,
the landlord spreads the cost between the other tenants. In Finland it can vary from site to
site. In Latvia caps are avoided at all costs, but, if given, rent (landlord) covers the cap.

Q24 What is the market practice for the treatment of service
charge shortfalls that arise from caps granted to tenants?
Number of
countries
% of countries
Shortfall fully reimbursed by landlord 15 55%
Shortfall spread amongst tenants 11 41%
Others 1 4%
Table 26: Shortfalls that arise from caps granted to tenants

The market practice for administering interest on service charge bank accounts in Belgium,
Bulgaria, Finland, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Spain, Sweden
and the United Kingdom is that it is fully credited to the service charge. The UK is the only
country where separate bank accounts are in use and, even when in combined accounts, it is
still offset against bank charges. Offsetting against bank charges and being credited to the
service charge, is common in Denmark, Estonia, France, Greece, Italy, Serbia, Slovakia and
Turkey. In the Czech Republic a very small amount is kept by landlords. In Latvia service
charges are invoiced for the current month, so interest is minor or even negative, as landlords
at times credit self-budget, so that interest remains with the landlord. In Hungary neither bank
charges nor interests are charged. In Austria, Romania and Russia it is used as additional
income.

Q25 What is the market practice for administering interest on
service charge bank accounts?
Number of
countries
% of countries
Fully credited to the service charge 11 42%
Offset against bank charges and credited to the service charges 8 31%
Other 7 27%
Table 27: Administering interest on service charge bank accounts
9.2.2.4 Dispute process between landlord and tenant relating to service charges
In most countries (12) Court proceedings are the normal way to resolve disputes between a
landlord and a tenant. Appointed-expert determination is common in Estonia, Lithuania and
Romania. A professional organisation dispute resolution guide occurs in Slovakia and
Sweden. In Luxembourg a professional tribunal is used. In Belgium, Portugal and Turkey this
has not been observed. In the Czech Republic it is mainly through negotiations between
parties. In France most use Court proceedings, even if there is a possibility in some lease
contracts for arbitration (according to the CNCCs charter).

21
In Austria disagreements only happen with big retailers who have their own facility
management departments, and disputes are usually settled bilaterally through internal
experts. A professional organisation dispute resolution guide is used in Hungary; or the
landlord proves the amount of the service charges.

Q26 What is the normal dispute process between a landlord
and tenant in the case of disagreements on service charge
costs?
Number of
countries
% of countries
Court proceedings 12 44%
Professional organisation dispute resolution guide 3 12%
Appointed-expert determination 3 12%
Professional tribunal 1 4%
Other 7 28%
Table 28: Normal dispute process between a landlord and tenant
9.2.2.5 Tendering of service contracts
It is not a market practice to tender the service contracts for service charges in Denmark,
Greece, Germany (due to market prices) and the Netherlands (only for some big assets). In
Italy tendering procedures vary considerably from centre to centre. In the Czech Republic the
major landlords tender on a regular basis.

Q27 Is there a market practice in tendering the service
contracts for service charges in your country?
Number of
countries
% of countries
Yes 22 85%
No 4 15%
Table 29: Tendering the service contracts
9.2.2.6 Best practice guides
A best practice guide or a set of principles for service charges issued by a professional
organisation exists in Finland, France (edited by CNCC and revised in 2010, it is called the
Charte des relations bailleurs locataires" or "Charter for good practices between landlords
and tenants"), Germany, the Netherlands, Norway, Turkey and the United Kingdom (updated
RICS Code of Practice launched in May 2011).

Q28 Is there a best practice guide/set of principles for service
charges issued by a professional organisation in your
country?
Number of
countries
% of countries
Yes 7 26%
No 20 74%
Table 30: Best practice guide/set of principles for service charges

22
9.3 Reserve fund
A reserve fund is operated in Bulgaria (but not very common practice), Denmark, Estonia,
France (sometimes, according to lease contracts), Greece, Hungary, Italy, Latvia, the
Netherlands, Serbia, Slovakia and Spain. In the United Kingdom, historically, a significant
percentage of centres have run such funds but newer centres tend not to have this.

Q29 Is it market practice to operate a sinking fund/reserve
fund in shopping centres?
Number of
countries
% of countries
Yes 12 48%
No 13 52%
Table 31: Sinking fund/reserve fund
9.4 Insurance
Property insurance costs are usually recoverable in most countries. They are non-recoverable
in Estonia, Italy (it is the tenants' obligation under the lease agreements to establish their own
insurance for the portion of the building leased), Norway, Portugal, Russia, Sweden and
Turkey. In Lithuania, insurance is treated on a case-by-case basis in accordance with the
agreement and in the Netherlands recoverable insurance costs only cover glass insurance. In
the United Kingdom they are a recoverable but there is often a separate charge.

Q30 Are building insurance costs normally recoverable from
tenants under the service charge?
Number of
countries
% of countries
Recoverable 17 65%
Other 3 12%
Table 32: Building insurance costs

Terrorism insurance premium costs normally are non-recoverable in Estonia, Latvia,
Lithuania, the Netherlands, Norway, Poland, Portugal and Sweden. In Russia and Serbia this
point is still not applicable.

Q31 Are terrorism insurance premium costs normally
Number of
countries
% of countries
Recoverable 16 62%
Other 2 7%
Table 33: Terrorism insurance premium costs
9.5 Common costs additional notes
Tenants are usually open for trade on Sundays in Bulgaria, the Czech Republic, Estonia,
Finland, France, Hungary, Latvia, Lithuania, Poland, Portugal, Romania, Russia, Serbia,
Slovakia, Sweden, Turkey and the United Kingdom.


23
Shops are closed on Sundays in Austria, Germany (except at airports and railway stations. In
general shops are allowed to open on four Sundays each year), Greece, Luxembourg (some
exceptions) and Norway.

Belgium, Denmark, the Netherlands and Spain have regional variations.

In Italy, regional laws allow for a maximum of 12 Sunday and festive openings every year,
based on a calendar established yearly after consultation between municipal authorities and
retail trade associations. In addition, such laws often provide that a certain number of
additional Sunday and/or festive openings can be allowed by municipal authorities, again in
agreement with retailers' associations. Shopping centre regulations bind all tenants to apply
the opening calendar established by the centre management company, which normally
provides for the centre and all tenants to stay open whenever legally possible. An exception is
made for activities whose opening days and hours are regulated differently from retail, e.g.
banks.

Q32 Is it market practice for tenants usually open for trade on
a Sunday?
Number of
countries
% of countries
Yes 17 62%
No 5 19%
Regional variations 5 19%
Table 34: Tenants usually open for trade on a Sunday

24
10 Service charge distribution methods across Europe
The information provided is based on the findings of the service charge survey conducted by
the ICSC Retail Asset Management Committee in Spring 2011. Please note that all answers
given relate to the most widely applied practices in each country; this does not necessarily
mean that they are the only ones applied.
10.1 Austria
10.1.1 Most common costs
The common electricity, gas and water costs are normally recoverable from tenants under the
service charge. The same applies for security, cleaning, landscaping, maintenance and
centre/site management costs. Taxes are also recoverable, but some big anchors are trying
to exclude this from their service charge scope. The cost for centre/site management
accommodation is treated as a common area.

The management fee is only based on rental income. The facilities management costs are
normally recoverable from tenants, and property management is mainly recoverable. Only the
cost of services which are clearly for the landlord, remain with the landlord.

The market practice for administrating the marketing budget is via a tenants association and
the landlords contribution to the marketing budget is discretionary. Mall income (non-core
income) is retained by the landlord as additional income.

Costs related to sustainability are non-recoverable from tenants.
10.1.2 Most common service charge distribution, collection and
accountability
Floor area basis is the market practice for apportioning the service charge costs between
tenants, and it is not common for there to be a weighting. Shortfall related to vacant units is
spread amongst tenants and the payments are usually made monthly in advance.

The budget report is not provided to tenants. The service charge reconciliation is not internally
or externally audited. Service charge shortfalls that arise from caps granted to tenants are
spread amongst tenants. The interest on service charge bank accounts is retained by the
landlord.

Disputes between landlord and tenant over service charge costs are rare, and normally only
happen with big retailers who have their own facilities management departments. Disputes
are usually settled bilaterally through internal experts.

It is market practice to tender the service contracts for service charges.

There is not a best practice guide/set of principles for service charges issued by a
professional organisation at present.
10.1.3 Reserve fund
Shopping centres in Austria do not operate a sinking/reserve fund.

25
10.1.4 Insurance
Building insurance and terrorism premium insurance costs are usually recoverable from
tenants under the service charge.
10.1.5 Additional notes
Shops are usually closed on Sundays.
10.2 Belgium
service charge. The same applies for security, cleaning, landscaping, maintenance, taxes and
centre/site management costs. The cost for centre/site management accommodation can be
recoverable or non-recoverable; both are possible.

The management fee for service charges is usually based on a percentage of the service
charge. The property management and facilities management costs are also normally
recoverable from tenants.

The market practice for administrating the marketing budget is usually via a tenants
association and the landlords contribution to the marketing budget is discretionary. Mall
income (non-core income) is retained by the landlord as additional income.

10.2.2 Most common service charges distribution, collection and
accountability
tenants, and it is common for there to be a weighting. Shortfall related to vacant units is, in
most cases, fully reimbursed by the landlord. The payments are usually made quarterly in
advance.

The budget year presentation occurs from one month before to two months after, depending
on the date of settlement of previous year. The service charge reconciliation is internally and
externally audited. Service charge shortfalls that arise from caps granted to tenants are
spread amongst tenants. The interest on service charge bank accounts is fully credited to the
service charge.

Use of the normal dispute process between a landlord and tenant, in the case of
disagreements on service charge costs, is rare because everything is covered by the lease
contract.


10.2.3 Reserve fund
Shopping centres in Belgium do not operate a sinking/reserve fund.

26
10.2.4 Insurance
The opening of stores on Sundays is dependent on its geographical location, since there are
regional variations in place.
10.3 Bulgaria
centre/site management costs. The cost for centre/site management accommodation is
treated as common areas.

The management fee for service charges is usually a fixed fee, but some landlords usually
pay a bonus when the service charge budget is well managed and under control. The
property management and facilities management costs are also normally recoverable from
tenants.

under the landlord/landlords agents control. The landlords usually contribute to the marketing
budget for the property. Mall income (non-core income) is retained by the landlord as
additional income, and the kiosks also pay a service charge.

Costs related to sustainability are recoverable from tenants.
accountability
tenants, and it is common for there to be a weighting. Some differences can occur as a result
of leasing deals. Food court and after-hours tenants pay higher values. Shortfall related to
vacant units is fully reimbursed by the landlord. The payments are usually made monthly, in
advance.

The budget year presentation occurs one month before the start of the year. The service
charge reconciliation is externally audited, usually by one of the Big Four companies.
Service charge shortfalls that arise from caps granted to tenants are fully reimbursed by the
landlord but, in some centres, the landlord spreads the cost amongst the other tenants. The
interest on service charge bank accounts is fully credited to the service charge.

The normal dispute process between a landlord and tenant, in the case of disagreements on
service charge costs, is Court proceedings.


In Bulgaria there is not a best practice guide/set of principles for service charge issued by a
professional organisation, or specific legislation covering this area. Shopping centres have
only been in operation for five years in Bulgaria, so both sides landlords and tenants need
to develop a code of best practice.

27
10.3.3 Reserve fund
Some shopping centres in Bulgaria operate a sinking/reserve fund, but is not a very common
practice.
10.3.4 Insurance
Shops are usually open on Sundays.
10.4 The Czech Republic
centre/site management costs. The centre/site management accommodation is rented by the
managing agent/landlords representative.

The management fee for service charges is usually based on rental income. The property
management and facilities management costs are also normally recoverable from tenants.

under the landlord/landlords agents control; mainly full landlord control. The landlords usually
contribute to the marketing budget for property, with the amount reflecting the current market
position of the shopping centre. Mall income (non-core income) is retained by the landlord as
additional income.

Costs related to sustainability have not been introduced yet.
accountability
tenants, based on the area let, and it is common for there to be a weighting. Shortfall related
to vacant units is fully reimbursed by the landlord, but a few major market players pass the
cost onto the tenants. The payments are usually made quarterly in advance.

The budget year presentation does not occur before the start of the year. The service charge
reconciliation is internally audited, but only by the landlord. Service charge shortfalls that arise
from caps granted to tenants are spread amongst tenants. The interest on service charge
bank accounts is a very low amount and is kept by the landlords.

service charge costs, mainly relies on negotiations between both parties.



28
10.4.3 Reserve fund
Shopping centres in the Czech Republic do not operate a sinking/reserve fund.
10.4.4 Insurance
10.5 Denmark
managing agent/landlords representative.


under the landlord/landlords agents control and/or via a tenants association. The majority of
landlords contribute to the marketing budget for property. Mall income (non-core income) is
retained by the landlord as additional income.

accountability
tenants, and it is common for there to be a weighting. Shortfall related to vacant units is fully
reimbursed by the landlord. The payments are usually made monthly or quarterly in advance.

The budget year presentation occurs from one to three months before the start of the year.
The service charge reconciliation is internally audited. Service charge shortfalls that arise
from caps granted to tenants are fully reimbursed by the landlord. The interest on service
charge bank accounts is offset against bank charges and credited to the service charges.


It is not market practice to tender the service contracts for service charges.


29
10.5.3 Reserve fund
Shopping centres in Denmark operate a sinking/reserve fund.
10.5.4 Insurance
The opening of stores on Sundays is dependent on their geographical location, since there
are regional variations in place.
10.6 Estonia
centre/site management costs. Property taxes and repairs are non-recoverable. The cost for
centre/site management accommodation is treated as common areas.

The management fee for service charges is usually a fixed fee. The property management
and facilities management costs are also normally recoverable from tenants.

under the landlord/landlords agents control. The landlords usually contribute to the marketing
budget for the property. Mall income (non-core income) is credited back to the service charge.

Costs related to sustainability are non-recoverable from tenants, except green electricity.
accountability
reimbursed by the landlord. The payments are usually made monthly in arrears.

The budget year presentation occurs from one to three months prior to the commencement of
the service charge year. The service charge reconciliation is internally audited, according to
an open books policy. Service charge shortfalls that arise from caps granted to tenants are
spread amongst tenants. The interest on service charge bank accounts is offset against bank
charges and credited to the service charges.

service charge costs, is appointed-expert determination.


There is not a best practice guide/set of principles for service charge issued by a professional
organisation at present.

30
10.6.3 Reserve fund
Shopping centres in Estonia operate a sinking/reserve fund.
10.6.4 Insurance
Building insurance and terrorism premium insurance costs are usually non-recoverable from
10.7 Finland
treated as common areas, but this can vary from site to site.


The market practice for administrating the marketing budget is via a tenants association, but
this can vary from site to site; also it is under the landlords control. The landlords usually
contribute to the marketing budget for property. Mall income (non core income) is retained by
the landlord as additional income.

accountability
most cases, fully reimbursed by the landlord. The payments are usually made monthly in
advance.

the service charge year. The service charge reconciliation is externally audited. Service
charge shortfalls that arise from caps granted to tenants are fully reimbursed by the landlord,
but this can vary from site to site. The interest on service charge bank accounts is fully
credited to the service charge, but this can vary from site to site.


Finland has a best practice guide/set of principles for service charge issued by a professional
organisation.
10.7.3 Reserve fund
No information was provided.

31
10.7.4 Insurance
10.8 France
service charge. The same applies for security, cleaning, landscaping, taxes, centre/site
management costs and maintenance, except sometimes for very important repairs or
investments, depending on lease contract clauses. The cost for centre/site management
accommodation is treated as common areas.

charge; however it is changing to a fixed fee, which gives the right incentives to the
management team. The facilities management, service charge management and marketing
management costs are normally recoverable from tenants. Rent collection, according to the
CNCCs charter, is non-recoverable, even if a few landlords do recover it.

The market practice for administrating the marketing budget is mostly through the tenants
association. However a 2010 High Court decision declared it illegal for a lease contract to
oblige a tenant to be a member of an association Therefore, more and more marketing
budgets are directly managed by landlords/management companies but always out of the
common service charges budget. The landlords contribution to the marketing budget is
discretionary. Mall income (non-core income) is retained by the landlord as additional income
but, in some cases, mall income is credited back to the service charge.

Costs related to sustainability are a key matter under discussion between landlords and
tenants through their own associations.
accountability
tenants, and it is common for there to be a weighting. Tenants who open for trade on
Sundays or later at night usually pay specific common service charges generated by the extra
opening (security, safety, heating, ventilation and air-conditioning). Shortfall related to vacant
units is fully reimbursed by the landlord. The payments are usually made quarterly in
advance, or in a few shopping centres are made monthly in advance.

the service charge year. Retailers continue to request the key figures of the forecast budget,
but only some shopping centre management companies send these to the tenants. The
service charge reconciliation is not always externally audited and audits are either account
audits or "professional" audits (verify good practices, compliance with laws, etc.). Service
charge shortfalls that arise from caps granted to tenants are fully reimbursed by the landlord.
The interest on service charge bank accounts is offset against bank charges and credited to
the service charges.


32
service charge costs, is mostly via Court proceedings even if there is a possibility in some
lease contracts for arbitration (according to the CNCCs charter).


There is a best practice guide/set of principles for service charges titled Charte des relations
bailleurs locataires" ("Charter for good practices between landlords and tenants"). The
document was edited by the CNCC and was revised in 2010.
10.8.3 Reserve fund
Sometimes shopping centres in France operate a sinking/reserve fund, depending on the
lease contracts.
10.8.4 Insurance
tenants under the service charge, depending on the lease contracts clauses.
In some specific areas (tourist areas or large urban areas such as Marseille or Paris) and for
certain retail activities, such as household goods and furniture, shops and shopping centres
can open on Sundays. Also, most centres can open for several Sundays per year, for
example during the Christmas period.

Most shopping centres in France are co-owned. Therefore, there are two levels for service
charge management. The management company is appointed by the co-owners and some of
them charge their tenants.
10.9 Germany
The common electricity, gas and water costs are normally paid directly by the tenant or are
recoverable from tenants under the service charge. The common security, cleaning,
landscaping, maintenance, taxes and centre/site management costs (if specified, up to a
specific amount) are also normally recovered from tenants. The centre/site management
accommodation is rented by the managing agent/landlord's representative.

There is no separate management fee for the service charge per contract as it appears in the
annual account. The property management and facilities management costs are normally
recoverable from the tenants.

The market practice for administrating the marketing budget is via a tenants association (the
conversation takes place with the centre management), and the landlord usually contributes
to the marketing budget. Advertising costs are normally paid by the tenants association
(marketing budget). Advertising costs do not form part of the service charge. Membership of
the tenants association is included in a separate contract to the lease contract. Mall income
(non-core income) is retained by the landlord as additional income, but in a few cases it can
be paid to the tenants association.


33
accountability
Floor area basis for units under 1,000m
2
and fixed amount for anchors (capped rates) are the
market practice for apportioning the service charge costs between tenants. Shortfall related to
vacant units is fully reimbursed by the landlord. The payments are usually made monthly in
arrears.

Tenants get the annual final account in September of the following year. The service charge
reconciliation is internally audited. Service charge shortfalls that arise from caps granted to
tenants are fully reimbursed by the landlord.The normal dispute process between a landlord
and tenant, in the case of disagreements on service charge costs, is firstly a conversation
between the property manager and the landlord with the tenant. If problems cannot be
resolved, then cccCourt proceedings are the next step.

Due to market prices, it is not market practice to tender the service contracts for service
charges.There is a best practice guide/set of principles for service charges issued by a
professional organisation.
10.9.3 Reserve fund
Shopping centres in Germany do not operate a sinking/reserve fund.
10.9.4 Insurance
Shops are usually closed on Sundays, except airports and railway stations. In general they
are open on four Sundays each year.
10.10 Greece
centre/site management costs. Concerning total change or remodeling maintenance and
taxes, they are non-recoverable. The centre/site management accommodation is rented by
the managing agent/landlords representative.


under the landlord/landlords agents control, and the landlords contribution to the marketing
budget is discretionary. Mall income (non-core income) is retained by the landlord as
additional income.


34
accountability
Property value per square metre is the market practice for apportioning the service charge
costs between tenants, and it is common for there to be a weighting. Usually factors such as
the specific site of a store in a mall, the access to escalators/lifts or the size of a store itself
compared to the total GLA, are taken into consideration to calculate the property value per
square metre for every store in a shopping centre. Shortfall related to vacant units is fully
reimbursed by the landlord. The payments are usually made monthly in advance.

the service charge year. The service charge reconciliation is internally audited. Service
charge shortfalls that arise from caps granted to tenants are spread amongst tenants.

service charge costs, is Court proceedings

It is not a market practice to tender the service contracts for service charges. There is not a
best practice guide/set of principles for service charges issued by a professional organisation
at present.
10.10.3 Reserve fund
Shopping centres in Greece operate a sinking/reserve fund.
10.10.4 Insurance
Shops are usually closed on Sundays.
10.11 Hungary
centre/site management costs.

The management fee is a fixed fee. The facilities management costs are non-recoverable
from tenants.

The market practice for administrating the marketing budget can be via a tenants association
or through the service charge and under the landlord/landlords agents control. The landlords
contribution to the marketing budget is discretionary and mall income (non-core income) is
retained by the landlord as additional income. In some centres the advertising budget benefits
from the additional income.



35
accountability
tenants, multiplied by a factor that depends on the position and the type of the unit. It is
common for there to be a weighting. Shortfall related to vacant units is fully reimbursed by the
landlord. The payments are usually made monthly in advance.

The budget report is not provided to tenants. The service charge reconciliation is internally or
externally audited. The interest on service charge bank accounts is either offset against bank
charges and credited to the service charges or alternatively, neither the bank charges nor
interest are charged as the amount is not deemed relevant.


Shopping centres in Hungary operate a sinking/reserve fund.
10.11.4 Insurance
Building insurance costs are usually recoverable from tenants under the service charge.
10.12 Italy
centre/site management costs. As Italian law makes a distinction between ordinary
and extraordinary maintenance, only ordinary maintenance costs (which include repairs)
can be charged to tenants. Taxes are non-recoverable and the centre/site management
accommodation is provided by the landlord at zero cost.

charge. Percentage fees on service charges can vary between 3% and 6%, inverse to the
size of the service charge budget. Fixed fees are sometimes applied in small centres with
limited rental income. The facilities management is normally recoverable from tenants, but
property management is non-recoverable.

With regard to the administration of the marketing budget, a tenants association was the
general rule until about ten years ago, but in the majority of cases it is now managed through
the service charge and under the landlord/landlords agents control. In all cases, the
marketing budget is always discussed and to some extent agreed with the tenants
association. The landlords contribution to the marketing budget is discretionary and mall
income (non-core income) can be retained by the landlord as additional income or credited
back to the service charge. Both practices are applied with more or less the same frequency.
The centre management company receives a fee varying between 10% and 20% on mall
income.

36
Costs related to sustainability are only recoverable from tenants if they can be classified as
normal site or building management costs.
accountability
Weighted GLA is the market practice for apportioning the service charge costs between
tenants, and it is common for there to be a weighting. Total GLA is converted into a weighted
GLA by applying weighting to anchor GLA (e.g. hypermarkets 20-30% of GLA, other anchors
50-60%, etc.). Service charges are then apportioned according to the area of the unit, based
on weighted GLA. The same process is followed for marketing (advertising and
communication) charges, but weighting is different and depends significantly on the
expenditure of anchor tenants for their own advertising campaigns on the grounds that they
support, albeit indirectly, the shopping centre as a whole. It is not uncommon for the
hypermarket to have a very low weighting (10-15%) or to pay no charges at all. Shortfall
related to vacant units is fully reimbursed by the landlord. The payments are usually made
quarterly in advance. Also, base rent is paid in advance by quarter; percentage rent, if
applicable, is paid yearly, normally in February or March of the following year.

the service charge year. The service charge reconciliation is not audited. Service charge
shortfalls that arise from caps granted to tenants are spread amongst tenants and, in a
minority of cases, shortfall is reimbursed by the landlord. The interest on service charge bank
accounts is offset against bank charges and credited to the service charges.

Unless otherwise provided in the lease agreement as sometimes happens with anchor units
the normal dispute process between a landlord and tenant, in the case of disagreements on
service charge costs, is arbitration.

It is market practice to tender the service contracts for service charges, but the procedures
vary considerably from centre to centre.

Shopping centres in Italy operate a sinking/reserve fund.
10.12.4 Insurance
Building insurance costs are usually non-recoverable from tenants under the service charge,
because it is the tenants' obligation under the lease agreements to establish their own
insurances for the portion of the building leased. In the case of terrorism premium insurance
costs, they are usually considered recoverable.
The opening of stores on Sundays is dependent on its geographical location, since there are
regional variations in place. In Italy, regional laws allow for a maximum of 12 Sunday and
festive openings every year based on a calendar established yearly after consultation
between municipal authorities and retail trade associations.

37
In addition, such laws often provide that a certain number of additional Sunday and/or festive
openings can be allowed by municipal authorities, again in agreement with retailers'
associations. Shopping centre regulations bind all tenants to apply the opening calendar
established by the centre management company y, which normally provides for the centre
and all the tenants to stay open whenever legally possible. An exception is made for the
activities whose opening days and hours are regulated otherwise than retail (e.g. banks).
10.13 Latvia
treated as common areas and taxes are non-recoverable costs. Some have triple net
contracts.

In Latvia, companies like Linstow do not charge a management fee for service charges. They
charge a percentage of the rent invoiced and an asset management property fee. Other
companies might charge a percentage of service charge or fixed fee. The property
management and the facilities management costs are normally recoverable from tenants.

under the landlord/landlords agents control or via a tenants association. Some companies
can run informal associations and invoice marketing separately and others include marketing
in the service charges. The landlords contribution to the marketing budget is common, but the
extent of contribution differs a lot. Mall income (non-core income) is, in most cases, retained
by the landlord as additional income. A few companies, like Linstow, divide the value of the
mall income and retain at least 50% as extra rent income, but almost 40% are used as extra
marketing contribution and nearly 10% covers service charge.

accountability
tenants, and it is not common for there to be a weighting, except for anchor tenants. They can
have special deals and pay just a percentage of the full service charge, lowering their cost per
square metre. Shortfall related to vacant units is fully reimbursed by the landlord. The
payments are usually made monthly in arrears.

the service charge year and each March a report is issued about the previous years charges.
The service charge reconciliation is not audited, but is covered by a policy of open books.
Service charge shortfalls that arise from caps granted to tenants are avoided at all costs. If
given, rent (landlord) covers the cap. The interest on service charge bank accounts remains
with the landlord.
Service charges are invoiced for the current month so interest is minor or even negative, and
sometimes the landlords service charge bank account becomes overdrawn.




38
professional organisation at present. There are three to four main players per market, and
each one does it differently.
Some shopping centres in Latvia operate a sinking/reserve fund.
10.13.4 Insurance
Building insurance costs may be recoverable from tenants under the service charge, but
terrorism premium insurance cost is non-recoverable.
10.14 Lithuania
treated as common areas and taxes are non-recoverable costs.

charge or a fixed fee. The property management and facilities management costs are also
normally recoverable from tenants.

under the landlord/landlords agents control, and it is common for the landlord to contribute to
the marketing budget. Mall income (non-core income) is retained by the landlord as additional
income.

accountability
reimbursed by the landlord.

The budget year presentation occurs one month prior to the commencement of the service
charge year. The service charge reconciliation is internally audited. Service charge shortfalls
that arise from caps granted to tenants are fully reimbursed by the landlord. The interest on
service charge bank accounts is fully credited to the service charge.




39
Shopping centres in Lithuania do not operate a sinking/reserve fund.
10.14.4 Insurance
Terrorism premium insurance costs are usually non-recoverable from tenants under the
service charge. The building insurance cost is analysed case-by-case according to agreement
details.
10.15 Luxembourg
centre/site management costs. The cost for centre/site management accommodation can be
recoverable or non-recoverable; both are possible.


The market practice for administrating the marketing budget is via a tenants association and
the landlord does not contribute to the marketing budget. Mall income (non-core income) is
retained by the landlord as additional income.

accountability
most cases but not always, fully reimbursed by the landlord. The payments are usually made
monthly in advance.

charge year. The service charge reconciliation is internally and externally audited. Service
charge shortfalls that arise from caps granted to tenants are spread amongst tenants. The

service charge costs, is through a professional tribunal.



40
Shopping centres in Luxembourg do not operate a sinking/reserve fund.
10.15.4 Insurance
Typically, shops are closed on Sundays, but there are some exceptions.
10.16 The Netherlands
The common electricity, gas, water costs, security, cleaning and maintenance costs are
normally recoverable from tenants under the service charge. The landscaping costs and taxes
are in principle non-recoverable costs. For the bigger schemes dedicated centre/site
management costs (estate caretaker) are mainly covered by the service charges. Centre/site
management accommodation is treated as common area.

The management fee for service charges is usually based on a percentage (approximately
5%) of the service charge. The facilities management cost is normally recoverable from
tenants, but the property management cost is not.

under the landlord/landlords agents control and it is common for the landlord to contribute to
the marketing budget. Mall income (non-core income) is retained by the landlord as additional
income. Costs related to sustainability are non-recoverable from tenants.
accountability
tenants. For units above a certain amount of floor space (mostly divided over different floors)
it is common to have a reduction. Shortfall related to vacant units is in principle a landlords
(financial) risk.

charge year. The service charge reconciliation for an average scheme is not audited (except
for the larger assets). Service charge shortfalls that arise from caps granted to tenants are
spread amongst tenants. The interest on service charge bank accounts is fully credited to the
service charge.

service charge costs, is Court proceedings. It is not a market practice to tender the service
contracts for service charges (except for the larger assets). There is a best practice guide/set
of principles for service charges issued by a professional organisation.

41
Shopping centres in the Netherlands operate a sinking/reserve fund. One objective of such a
fund could be to save Christmas decorations, for example.
10.16.4 Insurance
tenants under service charge; the exception is glass insurance.
The opening of stores on Sundays depends on their geographical location, since there are
regional variations in place. These are based on whether an area can be defined as a tourist
destination or not.
10.17 Norway
treated as common area. Taxes are considered non-recoverable costs.

charge. The property management cost is normally recoverable from tenants, but facilities
management cost is not.

under the landlord/landlords agents control and the landlords contribution to the marketing
additional income. Costs related to sustainability are recoverable from tenants.
accountability
reimbursed by the landlord. The payments are usually made quarterly in advance.

The budget report is not provided to tenants prior to the commencement of the service charge
year. The service charge reconciliation is externally audited. Service charge shortfalls that
arise from caps granted to tenants are fully reimbursed by the landlord. The interest on
service charge bank accounts is fully credited to the service charge.



There is a best practice guide/set of principles for service charges issued by a professional
organisation.

42
Shopping centres in Norway do not operate a sinking/reserve fund.
10.17.4 Insurance
The shops are closed on Sundays.
10.18 Poland
managing agent or landlord's representative.

The management fee for service charges is usually a fixed fee or based on rental income.
The facilities management cost is normally recoverable from tenants, but the property
management depends on particular lease agreement provisions.

additional income. Costs related to sustainability are non-recoverable from tenants.
accountability
Fixed percentage or floor area basis are the market practices for apportioning the service
charge costs between tenants, and it is common for there to be a weighting. Normally, anchor
tenants like hypermarkets pay capped or nil for service charges. Shortfall related to vacant
units is fully reimbursed by the landlord. The payments are usually made monthly in advance
and there is a yearly reconciliation of service charges at the year end.

year. The service charge reconciliation is internally audited. In some cases, the tenant has the
right to check their service charge costs. Service charge shortfalls that arise from caps
granted to tenants are fully reimbursed by the landlord. The interest on service charge bank
accounts is fully credited to the service charge.




43
Shopping centres in Poland do not operate a sinking/reserve fund.
10.18.4 Insurance
Building insurance cost is usually recoverable from tenants under the service charge, but
terrorism premium insurance is not.
10.19 Portugal
centre/site management costs. The centre/site management accommodation is treated as
common area. Taxes are considered as non-recoverable costs.

charge. The facilities management cost is normally recoverable from tenants, but the property
management is non-recoverable.

additional income.
Costs related to sustainability can be recoverable from tenants. Usually, current operational
costs are recoverable from tenants and investment costs are paid by the landlord/owner.
accountability
tenants, and it is common for there to be a weighting. Shortfall related to vacant units is the
responsibility of the landlord or the manager. The payments are usually made monthly in
advance.

the service charge year. The service charge reconciliation is not audited. Service charge
shortfalls that arise from caps granted to tenants are fully reimbursed by the landlord.

service charge costs, is rarely used, because the value is agreed between the parties on the
tenant contract. In Portugal there is no experience of disagreements.



44
Shopping centres in Portugal do not operate a sinking/reserve fund.
10.19.4 Insurance
10.20 Romania
common area or leased.


additional income.

Costs related to sustainability are non-recoverable from tenants. Capital expenditure is not
included as a charge.
accountability
tenants, and it is common for there to be a weighting. Shortfall related to vacant units can be
spread amongst tenants, depending on the lease agreements. The payments are usually
made monthly in advance.

year. The service charge reconciliation is sometimes externally audited, but this is not a
market practice. Service charge shortfalls that arise from caps granted to tenants are
sometimes spread amongst tenants, depending on the strength of the lease agreements. The
interest on service charge bank accounts is offset against bank charges and credited to the
service charges.




45
No information was provided.
10.20.4 Insurance
10.21 Russia
service charge though often it must be separately billed to actuals. The same applies for
maintenance cost (if that is stipulated in the lease) and for taxes. In some cases, if taxes are
being increased, then the service charge can increase accordingly. Thus, taxes are often
excluded if their inclusion would place too much of a burden on the service charge/tenant.

The common security, cleaning, landscaping and centre/site management costs are non-
recoverable. The cost for centre/site management accommodation is usually the responsibility
of the landlord. The management fee for service charges is usually included in the total
service charge.

The property management (also known as Head Office overheads) and facilities
management costs are normally recoverable from tenants, except for those that are capital in
nature.

budget is common. Mall income (non-core income) is retained by the landlord as additional
income.

Concerning costs related to sustainability, Russia does not have this issue; therefore it is not
in the lease as a separate clause.
accountability
fully covered by the landlord. The payments are usually made monthly in arrears.

A budget report on actual cost of the prior year is provided and that is what the charge for the
current year is based on. At the end of the current year a revision is made in the budget report
for service fee, equal to the actual for the year that has ended. It is market practice that the
service charge can be audited. But it is also market practice that tenants refrain from the right
to audit/review the correctness/fairness of the reconciliations. Service charge shortfalls that
arise from caps granted to tenants are fully covered by the landlord. The interest on service
charge bank accounts is used as additional income.


46
service charge costs, is usually Court proceedings.


Shopping centres in Russia do not operate a sinking/reserve fund.
10.21.4 Insurance
Building insurance costs are usually recoverable from tenants under the service charge, and
terrorism premium insurance costs are not applicable.

10.22 Serbia
common area. Taxes are considered non-recoverable costs.


budget is common. Mall income (non-core income) is credited back to service charge.

Costs related to sustainability are not applicable in Serbia.
accountability
fully reimbursed by the landlord. The payments are usually made monthly in advance.

The budget year presentation occurs from one to three months prior to the commencement
of the service charge year. The service charge reconciliation is internally audited.
Service charge shortfalls that arise from caps granted to tenants are spread amongst tenants.


47

Shopping centres in Serbia operate a sinking/reserve fund.
10.22.4 Insurance
Building insurance cost is usually recoverable from tenants under the service charge.
The terrorism premium insurance cost is not applicable in Serbia.
10.23 Slovakia
centre/site management cost. The centre/site management accommodation is treated as
common area.

charge or a fixed fee, depending on the contract. The property management and facilities
management costs are also normally recoverable from tenants.

additional income.

accountability
tenants, and it is common for there to be a weighting. Shortfall related
to vacant units is, in most cases and depending on contract, spread amongst tenants.
The payments are usually made monthly or quarterly in advance.

The budget year presentation occurs from one to three months prior to the commencement
of the service charge year. The service charge reconciliation is externally audited.
Service charge shortfalls that arise from caps granted to tenants are spread amongst tenants.
The interest on service charge bank accounts is offset against bank charges and credited
to the service charges.

The normal dispute process between a landlord and tenant, in the case of disagreements
on service charge costs, is through a professional organisation dispute resolution guide.


48

Shopping centres in Slovakia operate a sinking/reserve fund.
10.23.4 Insurance
10.24 Spain
service charge. The same applies for common security, cleaning, landscaping, maintenance,
taxes (excepted for anchor tenants) and centre/site management costs. The centre/site
management accommodation is treated as common area.

The management fee for service charges is usually a fixed fee plus a variable fee on mall
income. The facilities management cost is normally recoverable from tenants, but property

additional income.

accountability
tenants, and it is common for there to be a weighting. Larger units pay lower rates per square
metre and nowadays some anchor tenants even have a cap on service charges. Shortfall
related to vacant units is fully reimbursed by the landlord. The payments are usually made
monthly in advance.

charge year. The service charge reconciliation is not audited, except for fund-owned
condominiums. Service charge shortfalls that arise from caps granted to tenants are fully
reimbursed by the landlord. The interest on service charge bank accounts is fully credited to
the service charge.


49

Shopping centres in Spain operate a sinking/reserve fund.
10.24.4 Insurance
The opening of stores on Sundays is dependent on their geographical location, since there
are regional variations in place.
10.25 Sweden
The common electricity, gas, water costs and property taxes are normally recoverable from
tenants under the service charge. The common security, cleaning, landscaping, maintenance
and centre/site management costs are mainly non-recoverable, but it is becoming
increasingly common to at least partly recover them and the market is slowly moving towards
the European standard. The centre/site management accommodation is treated as common
area.

and facilities management costs are also normally non-recoverable from tenants.

income.

accountability
fully reimbursed by the landlord. The payments are usually made quarterly in advance.

The budget year presentation occurs one to three months prior to the commencement of the
service charge year. The service charge reconciliation is externally audited. Service charge
shortfalls that arise from caps granted to tenants are fully reimbursed by the landlord. The

service charge costs, is through a professional organisation dispute resolution guide.


50

Shopping centres in Sweden do not operate a sinking/reserve fund.
10.25.4 Insurance
10.26 Turkey
common area. Taxes are considered as non-recoverable costs. However, taxes on internal
transport systems (escalators, travelators and lifts) are recoverable through the service
charge.

The management fee is usually a fixed fee. The facilities management cost is normally
recoverable from tenants, but the property management is non-recoverable.

income.

accountability
tenants, and it is common for there to be a weighting. Usually anchors and some preferred
brands enjoy capped service charges. Shortfall related to vacant units is fully reimbursed by
the landlord. The payments are usually made monthly, per actuals.

The budget report is not provided to tenants. The service charge reconciliation is internally
audited. Service charge shortfalls that arise from caps granted to tenants are fully reimbursed
by the landlord. The interest on service charge bank accounts is offset against bank charges
and credited to the service charges.

There is no experience of disagreements between a landlord and tenant in Turkey, so there is
no normal dispute process in place.


51
It is market practice to tender the service contracts for service charges. There is a best
practice guide/set of principles for service charges issued by a professional organisation.
Shopping centres in Turkey do not operate a sinking/reserve fund.
10.26.4 Insurance
Building insurance costs are usually non-recoverable from tenants under the service charge,
but terrorism premium insurance cost is recoverable.

The Trade Council of Shopping Centers and Retailers (AMPD) and the Council of Shopping
Centers (AYD) are the two Turkish organisations which partner with ICSC in matters related
to shopping centre development and operations.
10.27 United Kingdom
common area. Taxes are paid directly by the tenants.

The management fee is a percentage of the service charge, but there is a growing trend for
management fees to follow the RICS Code and be based on the actual cost of managing
services. The facilities management cost is normally recoverable from tenants, but property

The market practice for administrating the marketing budget is through the service charge
and under the landlord/landlords agents control and the landlords contribution to the
marketing budget is discretionary. Mall income (non-core income) is retained by the landlord
as additional income.

accountability
tenants, and it is common for there to be a weighting for modern centres (i.e. larger stores
discounted). There are still a significant number of UK centres that have apportionment based
on rateable values. Shortfall related to vacant units is fully reimbursed by the landlord. The
payments are usually made quarterly in advance.


52
The budget report is provided to tenants one month before and often after the start of the
year. The service charge reconciliation is internally audited. Service charge shortfalls that
arise from caps granted to tenants are fully reimbursed by the landlord. The interest on
service charge bank accounts is fully credited to the service charge; but only in cases where
separate bank accounts are in use. For single accounts, interest is often offset against bank
charges.

The normal dispute process between a landlord and tenant, in the case of disagreements, is
Court proceedings.


There is a best practice guide/set of principles for service charges issued by a professional
organisation. An updated Code of Practice was launched in May 2011.
Shopping centres in the United Kingdom do not operate a sinking/reserve fund. Historically a
significant percentage of centres have run such funds but newer centres tend not to have this.
10.27.4 Insurance
tenants under the service charge, but as separate charges.

53
11 Sustainability
The world is changing and shopping centre stakeholders are aware of this. In the last few
years, most of the leading companies are developing sustainability policies and practices.

The sustainability policies are developed under the Triple Bottom Line model. The Triple
Bottom Line model (TBL), defined by John Elkington and included in the sustainability
definition created by the Brundtland Commission of the United Nations in 1987, is a popular
concept for understanding social responsibility among corporations looking to incorporate
non-monetary values into their business model. This model considers the impact of decisions
in terms of social and environmental value, as well as economic value.

The preparation of a sustainability policy constitutes a participative process with all the
companys employees and the external and internal company analysis. This policy must be
the outcome of the adoption of a set of principles and attitudes by shopkeepers, owners,
visitors, employees, the community and service providers. The integration of corporate risks,
the risks for the real estate assets and the opportunities for differentiation are the pillars of
action of the sustainability policy. These pillars can be identifying as mall management (social
matters), environmental management, product management, involvement with the community
and team management. This policy lists the strategic issues: security; cleaning, hygiene and
health; energy; transportation; hygiene and food safety; quality of services and products;
cooperation with local organisations; promotion of innovation.

Sustainability should not be an autonomous process but integral and cut across all areas of
the company. The results will be more comprehensive and have a higher impact on business.

11.1 Case study Multi Sustainability Index
Over the past two years, Multi Mall Management Portugal developed the MULTI
SUSTAINABILITY INDEX.

The MULTI SUSTAINABILITY INDEX model is divided into five dimensions and 15 relevant
issues that influence the sustainability performance of the mall. The formulation of
performance indicators used the following criteria:

The need to reflect key performance indicators, i.e. they must reflect the performance
management of the dimensions of sustainability policy and/or the performance of core
business;
The ability to be comparable centre to centre, regardless of the unique features of
each centre.

It is necessary to formulate a comparable scale to make the different indicators relevant
across the board. Thus, for each performance indicator, the following is necessary:
understand what is not enough, enough, good, very good or an excellent result for that
performance indicator; understand what is the maximum and minimum for different indicators
within the same range (taking into account that the performance indicators do not contribute
equally to the sustainability of the centre).

This model allows an assessment of a shopping centre, a comparative analysis with the
average of centres of a similar type and a comparative analysis with the global average.
Analysis is performed in two perspectives: macro through the analysis of five dimensions
(core business, mall management, product management, environmental management
and involvement with the community) and micro with the split of the five dimensions into
15 relevant subjects allowing a more detailed and focused approach.


54
This new tool allows a global vision of sustainability through the analysis of indicators that are
representative of its strategic themes. It also allows a comparative analysis between shopping
centres through its different dimensions and relevant subjects as well as the size and rating
of each subject or dimension at each centre. Finally it also stimulates the improvement
of aspects of lower-rated relevant subjects by the shopping centre, in order to bring the
performance of all assets under management.

For owners and managers of shopping centres the MULTI SUSTAINABILITY INDEX allows
comparisons between projects with different characteristics and creates platforms for internal
and external benchmarking.

55
12 Systems for register and processing the information
We stress the usefulness of implementing registration and business information systems in
asset management real estate companies. These systems can and should be extended to all
areas of activity in a shopping centre including financial, commercial, tenants, marketing and
operational.

When we consider the operating system, this should address and cover many functional
areas relevant to the management of the day-by-day operations of a shopping centre. Thus, a
module related on the technical part of the property, with information about the building and
about its operation should be included; also a module on marketing, running events and
campaigns, a module relating to the customer, including the management complaints and
suggestions, a module for sustainability with a special emphasis on issues of environmental
context and a last module with KPI project management.

The full registration of information and its appropriate treatment will generate indicators
for use by the management team that enable the aligning of the strategic guidelines, with
monitoring indicators, to improve the technical/operational work and control over sustainability
practices.
12.1 Case study Integrated System of Operational Management
Software (ISOM)
To overcome these difficulties and ensure registration and information processing, Multi Mall
Management has developed software called ISOM Integrated System of Operational
Management that allows for registering all the operational events that occur in centres.

The system addresses issues related to emergency management, technical issues,
operational records and many other requests, allowing the user to extract predefined reports
from the information stored.

For immediate sharing of events considered relevant, and to avoid the risk of non-
dissemination of information to the stakeholders, the system requires the operator to
characterise the occurrence and severity of the event. If the occurrence is relevant, the ISOM
software issues a predefined email warning. The internal and external teams can access
the occurrence information from their computer (internally or externally).

With the ISOM software, description and registration information is very straightforward and
information for the different areas can be extracted for analysis at any time.

This system is located at the Multi Mall Management main server, working in an open
network accessible to all employees and access levels in relation to the information held in
the system.

56
13 Innovation and development
The search for improved operational efficiency and quality raises the need to innovate and
develop processes and working tools that can help the management and resolution of all
issues pertinent to our business.

In general, difficulties arise in two ways: one way is linked to the current management of
day-by-day matters and whose resolution generates small improvements, often considered
an "Update"; the second way is related to the goal of achieving perfection in the management
of specific processes or as added value to the management of the organisation conducting
the relevant innovations, often referred to as an "Upgrade ".

The main objective of innovation and development is to find new resources and solutions that
fit in with the methods of the centres management and that are a strong support tool in key
areas of team management training.

Providing training and knowledge to our staff, in order to suit the needs of management
teams, with the sharing of best management company practices are key to the integration of
people who are the main key to business success.
13.1 Case study Multi Mall Management Business School willing to
share
The purpose of Multi Mall Management (MMM) is to provide an unmatched service quality.
Conscious of the importance of the people in this process, MMM has created a business
school. Its main focus is leveraging the knowledge of MMM in Europe. This is achieved
through the graduation and certification of all management teams through an internal training
course tailored to each individual to create a global platform for creative thinking and shared
differential based on the excellence of the management services provided.

To ensure the objective outlined in the strategy is met, an annual training course is devised
which takes into account individuals needs identified internally, whilst keeping up-to-date with
the knowledge and relevant management trends.

After developing the business schools training strategy, the training is planned in such a way
that it can be monitored and allows opportunities for improvement.

Occasionally additional training may be given, taking ever-changing social and economic
factors into account.

By sharing knowledge through training, our teams are better prepared and able to innovate
and develop their activities, contributing to new "updates" and "upgrades".

Our MMM Business School is willing to share.

57
14 Ethics and transparency
Creating and maintaining a healthy long-term relationship with the various stakeholders is one
of the objectives of transparency and ethics in business. This relationship is made up of trust
and openness, constantly demonstrated through open tenders, evaluations, open-books
strategies and accountability policies.

Over the past few years, ethical issues have gained greater importance in business as a
result of the global crisis that began in the US financial market and its connection to the real
estate sector through sub-prime mortgages.

The leading companies are moving forward with policies which include transparency. In
addition to the financial reports required by law, these companies present sustainability
reports, social reports, payroll reports and a lot of corporate information that allows the market
to look deep into their business models and identify any conflicts between the practices and
theories that they advocate.

One objective of these policies is not only to fulfill legal requirements but also to go beyond
the law, complying with and implementing best practices.

The shopping centre should be a business where visitors win, tenants win, landlords win,
service providers win, management wins, and the community wins. It is a real ALL-WIN
business, but this is only possible when ethics and transparency are present.

58
15 Certified companies safety in asset management
Several issues are associated with large scale real estate investments in assets such as
shopping centres. One of the primary issues relates to the security of the financial investment,
and another one relates to the complexity of its daily management.

Delivering the management to external entities has some advantages and some
disadvantages. The main advantage that is recognised is that the investment will be managed
by a company with substantial knowledge and experience in this area, thus maximising
profitability. However if there are not strict criteria in choosing the right company to run the
project, the risks associated with managing the investment may increase.

A company that has sustainability of its business as its objective, in addition to long-term
strategy, is not afraid to share their business models and methods, considering that these are
the advantages that help them win in the marketplace. It seeks continuous improvement in its
processes and ensures that the entire organisation is using best practices and that
management methods are introduced and uniform.

Companies with this type of management are seeking to certify their models in order to target
their management processes, identify strengths and risks of the organisation, create and
enhance the knowledge encoded (properly structured) and ultimately ensure existence of
legal and ethical limits and barriers to enable the proper and correct functioning of the
business, even in the most unfavourable conditions.

There are several examples of the certifications that ensure and guarantee the recognition
of management models. There is ISO 9001 "Quality" which relies on the precise definition
of procedures for the management of the company to ensure consistently the same rigour
and quality in the provision of customer service, or ISO 14001 which is associated with the
implementation of good environmental practices.
15.1 Case study Forum Montijo ISO 14001 Certification 2005/2008
ISO 14001:2004 is an international standard that establishes the best practices to be adopted
in implementing the Environmental Management System. This is a model recognised
throughout the world, intended to establish procedures by monitoring and operating properly
planned actions to promote improved environmental performance and attitudes towards the
prevention of pollution.

ISO 14001:2004 is beneficial not only to the organisation that implements management
systems, but also to customers, internal employees, suppliers, investors, neighbours and
society in general, i.e. all stakeholders. In addition to a sustainable image, the benefits are:
better organisation of the company regarding the treatment of the environment, greater
preventative knowledge of relevant legislation, resulting in anticipated and planned activities,
discipline in the execution of tasks, establishment of environmental indicators; continual
development of preventative action; better control of emissions/waste produced in order to
develop greater focus on their origin, reduction of operating costs through waste reduction,
definition of improvement plans with goals and targets, commitments, and teamwork.

In 2005 the Forum Montijo shopping centre, located in Portugal and managed by Multi Mall
Management, was certified with ISO 14001 Environment and was the first shopping centre in
Europe to achieve certification in this area.

In the beginning, the shopping centre changed some work processes to ensure that all
requirements of ISO 14001 would be met.


59
In the process of environmental certification, notable changes were experienced, in particular
as regards:

1. Better internal organisation;
2. Knowledge of updated legal matters on this area;
3. Awareness of all parties involved in the management of the mall, including the
management team, service providers, tenants and customers;
4. The provision of ongoing training;
5. An increase in the recognition of the centres image;
6. Increased and improved liaison with the local community;
7. Improved cost control.

The first and last point, which refer to internal organisation and cost control respectively,
deserve special attention taking into account that these processes are usually seen as
bureaucratic and expensive, when in fact it is an organised system and they are a natural way
of generating immediate savings, which in large organisations may have a return on
investment in less than a year.

As an example we quantified the savings generated as a percentage in the major category
costs in the first three years of certification Forum Montijo:

Electricity usage reduced by 31%;
Waste generated reduced by 11%;
Gas usage reduced by 8%.

The reduction in costs, compared with the cost of implementing and maintaining the
environmental system ISO 14001, represented a higher monetary saving.

60
16 Testimonials
16.1 Case study: Turkey
Jones Lang LaSalle entered the Turkish market when they successfully won the shopping
centre management contract for stanbul Cevahir Shopping Centre four years ago. Facilities
management of the shopping centre was outsourced to an international vendor on a cost plus
fee basis. On termination of the existing agreement, a thorough tender was held and the
contract was awarded to another vendor. Benefits included a service commission reduced by
half, the requirement that the vendor be party to subcontractor agreements thereby reducing
landlord risk and a change to a fixed price fee. The fixed price system resulted in a consistent
monthly service charge to the tenants which led to easier budgeting for all concerned.

16.2 Case study: Klpierre-Sgc Shopping Centres in Lombardy, Italy
Sgc Italia manages 16 shopping centres in Lombardy, a region in northern Italy. In 2010, it
decided to launch a centralised tender for the cleaning, security and snow-removing at these
centres. These services have previously been managed by the individual shopping centres
with different providers up to this point. It was necessary to gather relevant information on
each centre and create suitable tender documentation.

The process is on-going with a double objective:
To improve the quality of services at a high standardised level;
To reduce costs by about 10%.


61
16.3 Case study: Pasing Arcaden: How our tenants benefit from
geothermal energy
Within spitting distance from Pasing train station in the Munich quarter of the same name, on
15 March 2011, mfi Management fr Immobilien AG opened the first phase of their latest
shopping centre to 80,000 attendees.

Phase two will enlarge the centre by two-thirds by Spring 2013.

As a long-time developer, operator and manager of inner-city shopping centres, the company
remains true to its established brand Arcaden, but breaks new ground with Pasing Arcaden
and strikes new paths regarding sustainability which are not taken for granted in the real
estate business.

High energy costs are, in times of narrow margins, a sensitive issue for retail business. mfi
makes sure that these costs are reduced by using eothermal energy.

In the case of Pasing Arcaden, a heat pump system for groundwater use was installed. Using
two large heat pumps, the groundwater is used for provision of the cold water required
without high energy consumption. The cold water gets to the shops by a central circular
pipeline and there supplies the customers air-cooling devices. If the refrigeration capacity is
not sufficient, an additional mechanical cooling unit can be switched on.

Where is the advantage for the tenants?
16.3.1 Geothermal energy saves money
Split-refrigeration plants with external devices are electric-driven and electricity is expensive.
A heat pump makes much more effective use of the cold groundwater for cooling. Thus, they
save electricity, which is to the advantage of the tenants: the operating expenses for in-shop
air conditioning are lower.
16.3.2 Maintenance expenses rest on many shoulders
Maintenance expenses for the central system are allocated to all associated shops, and the
costs for every single tenant decrease.
16.3.3 Default risk decreases
If one module of the cooling system fails, other cooling units automatically take over its
function. This reliably prevents total system breakdown and overheated shops.

62
16.3.4 Trouble-free maintenance and operation
Maintenance and operation of the central cooling system are managed by mfi. Tenants can
concentrate on the essential: their shops. Furthermore, flow meters at the feed pipe
guarantee that tenants just pay what for what they use.
16.3.5 An overview of the energy costs and maintenance for a 300m
2

shop:
Without groundwater use and central circular cooling pipeline 2,723.00 /p.a.
With groundwater use and central circular cooling pipeline 784.00 /p.a.
Savings per annum 1,959.00 /p.a.
16.3.6 No individual installation and provision of expensive external
devices
Due to the centralised generation of cooling water, tenants can avoid the purchase,
installation and maintenance of external devices. The installation is particularly difficult and
expensive, because separate pipes for external split-devices have to be installed up to the
roof.
16.3.7 Fixed connection fee brings planning dependability
A fair lump sum cost is charged for the connection of a shop to the central circular cooling
pipeline based on the size of the leased area. No further investment costs arise meaning
there are no further uncertain cost factors.

For a shop size of:
up to 50m
2
8,000
up to 100m
2
11,000
up to 300m
2
18,000
up to 500m
2
22,000
16.3.8 Investment of individual, usually smaller appliances is not more
reasonable!
300m shop: investment split-cooling system (internal and external units) 18,000

63
16.4 Case study: Service charge and waste management, Marseille Grand
Littoral, France Corio
As part of Corios commitment to sustainable development and our quest to optimise service
charge levels for our tenants, we have implemented a waste management system at
Marseille Grand Littoral in order to both reduce the environmental impact of the centres
activities and to achieve economies in service charge levels.

16.4.1 A waste management system for Grand Littoral, Marseille, France

In 2009, when Corio took over management of the recently acquired centre Grand Littoral in
Marseille, there was no official waste management system in place. The waste was not
regularly collected, let alone separated. Corio immediately drew up a tender for the
management and recycling of waste and that tender was won by Eaux de Marseille, which
rose to the challenge of helping Corios centre in seeking to attain ISO 14001 certification.
The programme started in 2010, under the management and organisation of a dedicated
team consisting of five people working six hours per day, six days per week.

To promote the scheme, the waste programme committee appointed waste ambassadors to
help and advise tenants on implementing the improvements.
16.4.2 Achievements
The volume of waste recycled rose from 30% in 2009 to 45% in 2010;
CO
2
emissions were reduced thanks to optimisation of waste transport;
The centre now has a clear picture of the quantities and types of waste produced;
All rubbish is now sorted for recycling.
16.4.3 Targets
49% of waste to be recycled by end 2011, rising to 53% by end 2012;
Attain ISO 14001 certification in 2012;
Sustainable economies in service charge levels.

64
16.5 Case study: White Rose Centre, Leeds, United Kingdom
In early 2009, collaboration between the landlord and key retailers at the White Rose Centre
in Leeds resulted in the service charge budget being reduced by 13%, which greatly assisted
occupiers at the height of the recession. This was part of a wider initiative that resulted in the
introduction of a Ten Point Plan that could be used as a template for challenging costs at any
shopping centre.

Savings achieved consisted of both sustainable changes to processes, staffing and service
levels as well as deferment of non-essential repairs. This was made possible as a result of
having transparency and a close dialogue between landlord and occupiers.

16.6 Case study: MyZeil Shopping Centre in Frankfurt, Germany
MyZeil opened February 2009 and is managed by DTZ and STRABAG STRABAG is
responsible for the facility management. It was decided to optimise the service charges after
an experience period of one and a half years, because during the pre-opening phase the
commissioning was only done on a functional basis.

In 2010 the facility manager finalised the service specifications and offered immediate savings
of about 500,000 per year by reducing the costs of their sub-contractors.

MAB Asset Management instead started the tendering process and made quick wins of about
540,000 per year. After having contracted new conditions, MAB Asset Management again
saved an additional 864,000.

The process is on-going with a two-fold objective:
To optimise the quality of services at a high standardised level;
To save costs by re-contracting after tendering by MAB Asset Management.


65
16.7 Case study: Taking advantage of the crisis and demonstrating
partnership with tenants, Felicia Shopping Centre in Iasi, Romania
In 2009, the whole market suffered from the impact of changes in the global financial market
and this fact was also reflected in the development of sales, and thus the profitability of
tenants. In order to demonstrate partnership with tenants, asset management together with
property management adopted a significant renegotiation programme to achieve at least 5%
saving on total budget. After scrutinising service level and adjusting price levels with its
suppliers, this target was exceeded and a saving of 15% was achieved. This exercise halted
a negative evolving trend from the past and set good prospects for keeping the right cost
levels in the future.

66
17 What next for cost effective, reasonable and transparent
service charges in shopping centres in Europe?
There are disparities between European countries in terms of processes and models of
property management which sometimes make it hard to compare service charge costs, but
the industry could seek to find ways to compare and contrast shared costs such as security
and cleaning, perhaps via benchmarks.

Efficiencies can be obtained by the wider use of building management systems and
centralised data systems to enable monitoring of costs.

As major users of energy, shopping centres would benefit from a clearly defined policy on
sustainability, along with the use of ISO 14001 and EMAS whenever possible to strengthen
the image of shopping centres positively in society, with the business sector and with
governments.

The options for energy production must be considered, including the use of micro-production
of solar energy, the use of wind generators using natural energy sources, energy from waste
materials amongst other initiatives, all of which will provide cost savings and reduced levels of
CO
2
emissions.

It becomes imperative that the certification and accreditation of managers be encouraged,
which will improve the recognition of qualifications and will be a differentiating factor for good
managers, which is especially important in this economic climate.

A properly accredited manager with sustainable business models will provide the ethical and
transparent service vital to improving the management of service charges across Europe.

Finally, clear and objective dialogue between all those involved in the retail property business
tenants, landlords and property managers is essential for ensuring reasonableness and
transparency in the management of service charges, improving confidence levels from all
those involved. So methods to improve communication as an integral part of managing
property are essential.

Promoting these key themes among all landlords and managers will ensure service charges
are run effectively to the benefit of all stakeholders, retailers, landlords and managers.

67
18 Appendix
18.1 Table of Figures
Table 1: Survey respondents .................................................................................................... 6
Table 2: Most common costs .................................................................................................. 12
Table 3: Common area electricity, gas and water costs ......................................................... 12
Table 4: Common security costs............................................................................................. 13
Table 5: Common area cleaning costs.................................................................................... 13
Table 6: Common area repairs and maintenance costs ......................................................... 13
Table 7: Landscaping costs .................................................................................................... 13
Table 8: Common area cleaning costs.................................................................................... 14
Table 9: Property taxes........................................................................................................... 14
Table 10: Site/centre management costs................................................................................ 14
Table 11: Costs for the centre/site management accommodation.......................................... 15
Table 12: Property management (rent collection, tenant management, etc.) costs................ 15
Table 13: Facilities management costs................................................................................... 15
Table 14: Management fee ..................................................................................................... 16
Table 15: Administrating the marketing budget....................................................................... 16
Table 16: Landlords usually contribute to the marketing budget............................................. 16
Table 17: Mall income (non-core income)............................................................................... 17
Table 18: Sustainability costs.................................................................................................. 17
Table 19: Method of apportioning service charges ................................................................. 18
Table 20: Are weightings commonly used? ............................................................................ 18
Table 21: Shortfalls to the service charge from vacant units .................................................. 18
Table 22: Frequency of service charge payments by tenants................................................. 19
Table 23: Budget report provided to tenants prior to the commencement of the service charge
year .................................................................................................................................. 19
Table 24: How soon prior to the start of the budget year is this provided?............................. 19
Table 25: Service charge reconciliation to be audited ............................................................ 20
Table 26: Shortfalls that arise from caps granted to tenants................................................... 20
Table 27: Administering interest on service charge bank accounts........................................ 20
Table 28: Normal dispute process between a landlord and tenant ......................................... 21
Table 29: Tendering the service contracts.............................................................................. 21
Table 30: Best practice guide/set of principles for service charges ........................................ 21
Table 31: Sinking fund/reserve fund ....................................................................................... 22
Table 32: Building insurance costs ......................................................................................... 22
Table 33: Terrorism insurance premium costs........................................................................ 22
Table 34: Tenants usually open for trade on a Sunday .......................................................... 23

International Council of Shopping Centers/Europe LLC
29 Queen Annes Gate
London
SW1H 9BU
United Kingdom
Tel: + 44 20 7976 3100
Fax: + 44 20 7976 3101
www.icsc.org
For more information, please contact us at: icsc.europe@icsc.org

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