New rules for service charges in commercial property come into effect from April 2019. For the first time, the Service Charges in Commercial Property introduces new mandatory requirements to be followed by RICS members and regulated firms, including:
- All expenditure that the owner seeks to recover must be in accordance with the terms of the lease
- Owners must seek to recover no more that 100 percent of the proper and actual costs of provisional or supply of the services
- Owners and managers must ensure that service charge budgets, including explanatory commentary are issued to all tenants
- Owners and managers must ensure that an approved set of service charge accounts showing an accurate record of expenditure arising under the service charge are provided annually to all tenants
- Owners and managers must ensure that a service charge apportionment matrix is provided annually to all tenants
- Service charge monies, including reserve and sinking funds must be held in one or more discrete bank accounts
- Interest earned on service charge accounts must be credited to the service charge account after appropriate deductions have been made
- Where acting on behalf of a tenant, practitioners must advise their clients if a dispute exists that any service charge payment withheld by the tenant should reflect only the actual sums in dispute (and not withhold all payments)
- When acting on behalf of the landlord, practitioners must advise their clients that following resolution of a dispute any service charge that has been raised incorrectly should be adjusted to reflect the error, without undue delay
Whilst most reputable managing agents have already been operating in accordance with the code, the new guidance makes it clear what constitutes best practice and helps to improve fairness and transparency in service charge administration.
Hopefully the new code will reduce the causes of disputes on service charges, assist in the resolution of any disputes, and help landlords and tenants of properties with service charges to operate leases in accordance with RICS best practice.
Andrew Kilpatrick is managing director of Kilpatrick & Co chartered surveyors http://kilpatrick-cpc.co.uk