2+2=? Understanding Vacancy Credits
Cleaning contracts for multi-tenant buildings typically don’t include a set, inflexible monthly price. Rather, they are sold with prices based on 100 percent occupancy — a full building — plus an allowance for the property manager in case some space stays or becomes empty.
This allowance, called a “vacancy credit,” ensures property managers don’t pay for cleaning unoccupied units. The credit, of course, varies based on occupancy levels, but usually is determined by a rate formula. The vacancy-credit rate usually is calculated by taking a predetermined price per square foot multiplied by the square footage of vacant tenant areas that are not being serviced.
This figure sounds straightforward, but there can be confusion. Property managers, for instance, often feel that their monthly vacancy credit rate should equal their overall price per square foot.
Although the property managers’ reasoning is logical, other factors affecting vacancy credit calculations have to be considered. Variation in the cost of cleaning areas within a building, and the contractor’s own overhead costs, usually result in a lower credit than a price-per-square-foot subtraction would yield.
Public areas, such as entryways, lobbies, restrooms, corridors, stairways and elevators, provide a visitor’s first impression of the building. The cleaning specifications for these high- visibility, high-traffic areas are more comprehensive than the specifications for typical tenant space.
It follows that these focal areas take more time to clean than comparable square footage of carpeted tenant space. Although public areas typically account for just 10 percent to 20 percent of the building’s area, they can account for 25 percent to 35 percent of the cleaning time. Therefore, the actual price per square foot in public areas is higher than the price per square foot in tenant areas because of the increased cleaning time required.
Similarly, periodic floor and carpet maintenance adds to public-area expenses. Most property managers provide little, if any, periodic floor maintenance for their tenant space; however, property managers understand the importance of making public areas shine.
So, they typically include periodic floor and carpet maintenance for these areas in their janitorial contracts. This infrequent work includes scrubbing quarry tile entries and ceramic tile restrooms, hot water extraction of public corridors, refinishing of resilient tile in public area lunch/vending areas, and many other additional tasks.
These additional services, necessary to keep the building looking its best, increase the cost to clean public areas. And these spaces need to be cleaned regularly, whether the building is full or almost empty.
Cover your bases
The contractor has certain base costs to clean the building, and the addition or deletion of tenant space does not substantially offset those costs. For example, the small tools and equipment, such as vacuum cleaners, brute barrels and dusters that are required on site remain constant unless there is a major vacancy that occurs in the building. Likewise, the number of hours per night or per week that the supervisor and management team spend in the facility will not decrease. Finally, the building service contractor’s overhead costs for administration, human resources, accounting, vehicles, etc., remain constant. In other words, contractors have certain fixed costs, including equipment, overhead, supervision and management, that are not directly tied to the building’s occupancy.
A credible explanation
Due to these factors, overall price per square foot might range from $.09 to $.11 per month, while the vacancy credit rate may be just $.06 to $.08 per square foot per month. But explaining this information to your clients can be difficult if they mistakenly believe you are trying to overcharge them after the fact.
To avoid this, explain the difference between the vacancy credit and the overall price per square foot to the client during the proposal processes. In some cases, it may be useful to share your labor-time engineering with the client so they can see that you allocate more time to clean public areas.
However you go about it, everyone wins when your client understands more about your business and the vacancy credit process.
Barbara Whitstone is the Business Development Manager for CleanPower Inc., a building service contractor with operations throughout Wisconsin. In November of 2000, CleanPower merged with Marsden Building Maintenance, St. Paul, Minn.
Disclaimer: Please note that Facebook comments are posted through Facebook and cannot be approved, edited or declined by CleanLink.com. The opinions expressed in Facebook comments do not necessarily reflect those of CleanLink.com or its staff. To find out more about Facebook commenting please read the Conversation Guidelines.