Lead Forensics
Prettys Solicitors Ipswich

Resources

SERVICE CHARGES IN COMMERCIAL LEASES

The new RICS Service Charges in Commercial Property Professional statement is due to take effect on 1 April 2018. This supersedes the current RICS Code of Practice for Service Charges in Commercial Property, 3rd edition, January 2014.

Professionals involved in the management of service charge accounts will no longer be guided by the 2014 Code of Practice’ which set out expectations and recommended  best practice in providing and operating a service charge.

From 1st April RICS members and regulated firms who are usually the parties operating service charges on behalf of landlords must comply with the eight mandatory core principles or face potential legal and/or disciplinary consequences for not complying.

The Eight Core Principles

  1. Owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services unless the lease of the property gives them the explicit right to do so. 
  2. Owners and managers must ensure that service charge budgets, including appropriate explanatory commentary are issued annually to all tenants.
  3. Owners and managers must ensure that a signed statement showing a true and accurate record of the actual expenditure constituting the service charge is provided annually to all tenants. 
  4. Owners and managers must ensure that a service charge apportionment schedule for their property is provided annually to all tenants. 
  5. All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease. 
  6. Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts. 
  7. All interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculates on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made. This applies for instance to bank charges, tax etc. 
  8. Where acting on behalf of a tenant, RICS members must advise their clients that if a dispute exists, any service charge payment withheld by a tenant should reflect only the actual sums in dispute.

The Professional Statement also makes it clear that maintaining uniformity across service charge provisions should not be treated as a barrier to updating existing service charge provisions to modern standards. It also recommends that landlords should consider operating dual service charge provisions in tandem, one based on the older form of lease and the other based on the modern form, with the lease containing  interim provisions to reflect the ideal service charge regime going forward as well as maintaining the status quo for the time being, and when the tipping point is reached, an owner can change over from the old service charge regime to the new one.

This article was written by Prettys commercial property team for guidance only and does not constitute specific legal advice. For more information please contact commprop@prettys.co.uk.

« Back

 

 Share

Legal 500LexcelConveyancingChambers UK