Service Charge Code: Time to be Professional?

Insights - 28/09/2018

Aranja Thamotharampillai, a solicitor in our Commercial Property department looks at the published professional statement by the Royal Institutes of Chartered Surveyors (RICS) regarding the Service Charge Code.

The Royal Institute of Chartered Surveyors (‘RICS’) has published, for the first time, the Service Charge Code as a professional statement ‘Service Charge in Commercial Property (1st edition)’. This professional statement surpasses the previous three editions that were published as codes of practice and will be effective from 1st April 2019.

What are service charges?

Service charges are nearly always mentioned in residential and commercial leases but tend to be heavily disliked by tenants. These are costs incurred by a landlord for running and maintaining shared parts of the building or estate, which the landlord can charge back to tenants.

In an ideal world, a fair and reasonable balance would be met when commercial leases are drafted. The charges incurred by a landlord would be transparent, the services provided would be of a reasonably good quality and standard and payment of service charges would be made on time. The current position is not always like this but with the Service Code, perhaps an ideal world could exist from 1 April 2019… for a tenant and landlord at least.

What is happening from 1st April 2019?

The professional statement will be effective. The document sets out the best practice in the management and administration of service charges in commercial property. It also provides mandatory obligations for RICS members and RICS regulated firms. Members should have justifiable reasons if they want to depart from the best practice requirements.

The mandatory requirements set the aims and objectives of the professional statement:

  • Promote best practice, uniformity, fairness and transparency in the management and administrative of service charges in commercial property, so improving general standards
  • Make sure budgets and year-end certificates are issued promptly
  • Reduce the causes of disputes and provide guidance on the resolution of disputes if these arise
  • Provide guidance to solicitors, landlords, tenants and managers of service charges, especially concerning the negotiation, drafting, interpretation and operation of leases in accordance with best practice.

There are core principles mentioned in the professional statement which support and underpin the mandatory requirements. The appropriate level of compliance may be based on the professional judgement of all parties as to what is appropriate and reasonable considering all the circumstances. However, it is acknowledged that some of the principles may be difficult to quantify or comply with.

Comments

The professional statement cannot override the lease, but it can facilitate users to identify the best way forward in interpreting that lease to ensure effective management of services. The principle of proportionality will also play a factor. You should look at the size, nature and type of property, the aggregate of the total service charge costs and the amounts payable by individual occupiers.  This should be consistent with best-value principles.

Nevertheless, landlords, managers and tenants should seek to comply with the mandatory requirements and core principles set out in the professional statement at all time. We shall see if this professional statement can enable a path towards effective management of the property whilst also aiding the relationships between landlords, managers and tenants on what can sometimes be a contentious issue.

If you have any questions or would like to discuss any of the issues raised in this blog, please feel free to contact Aranja Thamotharampillai, a solicitor within our Commercial Property team. Aranja is contactable by telephone on 01737 854 527 or by email on [email protected]

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.