RICS Service Charge Code for Commercial Properties

By Amy Cornelius

RICS has recently published the latest edition of its service charge code for commercial properties.

The Service Charges in commercial property (1^st Edition) comes into force on 1 April 2019 and affects commercial property only.

The new professional statement provides mandatory obligations that RICS members and regulated firms engaged in this area must comply with, with the aim of promoting best practice and fairness and transparency in the management and administration of commercial service charges.

There are nine new mandatory requirements which must be complied with at all times:

1. All expenditure that an owner and manager seek to recover must be in accordance with the terms of the Lease;
2. Owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of services;
3. Owners and managers must ensure that service charge budgets (including appropriate explanatory commentary), are issued annually to all tenants;
4. Owners and managers must ensure that an approved set of service charge accounts showing a true and accurate record of the actual expenditure constituting the service charge are provided annually to all tenants;
5. Owners and managers must ensure that a service charge apportionment matrix for their property is provided annually to all tenants;
6. Service charge monies (including reserve and sinking funds), must be held in one or more discrete (or virtual) bank accounts;
7. Interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made;
8. Where acting on behalf of a tenant, practitioners must advise their clients that if a dispute exists any service charge payment withheld by the tenant should reflect only the actual sums in dispute;
9. When acting on behalf of a 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.

The new code also introduces a service charge handover procedure – guidance is offered on how to reconcile service charge accounts, how to effectively transfer supplier information, and how to handover tenant and property financial details on sale of property.

Note: existing leases are unaffected by the new professional statement.

View the professional statement.

If you have any questions about anything contained in this article or Commercial Property in general please contact Amy Cornelius on 01604 609560 or by email: amy.cornelius@dfalaw.co.uk