Architects may sometimes confuse their clients when they talk about ‘outside-inside spaces’ to describe the quality of external space connecting with the interior of a building. But we all know what ‘internal’ really means … right? … well probably not!
Those of us in the world of property may well claim to understand the RICS definitions of Gross Internal Space (GIA) or Gross External Space (GEA), at least we thought we did until the definitions were overturned by a judgement recently made in court following a dispute between Alan J Smith OBE and Northumberland Estates about the service charges applied to the Red Box Design Group offices in Newcastle.
Red Box Design Group’s service charges should be based upon the proportion of their Gross Internal Area to the overall Gross Internal Area of the whole mixed use development of which they are a part, as set out in the lease. However they recently discoveredthat the landlord has been charging service charges for several years calculated on the basis that their roof terrace and entrance courtyard werepart of the Gross Internal Area, and this formed the most central part of a dispute which was taken to court for resolution.
The landlord’s agent DTZ arguedthat they could ‘reasonably’ consider the 2 areas to be classed as ‘internal’ because they were partly enclosed by the ‘external’ walls to the development. These walls were part of the original ‘listed’ historic elevations to the building. However similar roof terrace areas belonging to the residential apartments were excluded from their calculations.
The judgement confirmed that the entrance courtyard could not be described as part of the Gross Internal Area – the linear space has a gate at one end and no enclosure at all at the other end so it is difficult to see what other conclusion could be reached.
The judgement also confirmed that for fairness, all parts of the development should be treated the same – terraces to both residential and commercial offices. However the judgement concluded that all of the roof terraces could be included as part of the calculation of Gross Internal Area by a surveyor ‘acting reasonably’.
How can this be? Part of the problem is that the RICS definition of Gross Internal Area does not mention roof terraces, presumably because it is so obvious so as to be unnecessary. However the definition for Gross External Area clearly excludes roof terraces, presumably because that isn’t quite so obvious, and that now gives rise to the bizarre situation that Red Box Design Group’s offices have a Gross Internal Area (including roof terrace) that is much larger than the Gross External Area (which excludes the roof terrace)!!!
The decision to stand up to the landlord has been justified by a major reduction in the historic charges, and when that saving is calculated over the 125 years of the lease the true impact is enormous. However the strange interpretation of Gross Internal Area means that the saving is not as big as it might have been. Does the decision stand up to scrutiny? We think not.