Services charges can all too often become a source of contention between landlords and tenants.
To assist with the process of administering the service charge mechanism in leases, the Royal Institute of Chartered Surveyors (RICS) has previously published guidance, currently set out in the 3rd edition of the RICS Service Charge Code. This sets out best practice for surveyors to follow in providing services and operating service charge accounts with the intention of improving transparency and communication between landlords and tenants, thereby reducing the risk of dispute and conflict.
The RICS has now published its professional statement Service charges in commercial property (1st edition) (New Code) which will be effective from 1 April 2019.
The RICS has been concerned by the behaviour of certain landlords and managing agents and has long called for a fairer and more professional approach to property management to help outlaw these ‘rogue’ elements. So this New Code introduces a sea-change. It is the first time that this service charge code has been published as a professional statement, not only setting out best practice recommendations which have been expanded but also containing mandatory obligations for RICS members and regulated firms.
The new mandatory principles include the following:
- The costs that landlords seek to recover must be in accordance with the terms of the lease and be no more than 100% of the proper and actual costs incurred;
- Budgets and year end accounts must be provided annually;
- Service charge monies are to be held in one or more discrete bank accounts with any interest earned credited to the service charge account;
- Owners must provide a detailed explanation as to how the tenant contributions are calculated.
The New Code cannot override the terms of existing leases and a failure to meet the standards set out in the statement will not of itself negate or limit a tenant’s liability to pay service charge under the lease. However, the increased regulatory importance of the New Code should lead parties to consider its principles and, in particular, the mandatory requirements before entering into new leases.
This is not legal advice; it is intended to provide information of general interest about current legal issues.