MANDATORY REQUIREMENTS: RICS SERVICE CHARGES IN COMMERCIAL PROPERTY – PROFESSIONAL STATEMENT EFFECTIVE FROM 1ST APRIL 2019
This week, The RICS Service Charges in Commercial Property, 1st Edition, replaced the existing RICS Service Charge Code. This new mandatory document is a professional statement setting out requirements and core principles that must be followed by landlords and their managing agents.
The Royal Institution of Chartered Surveyors’ (RICS) new professional statement came into effect on April 1st, expanding on existing key recommendations and best practice guidelines, to ensure service charges to commercial tenants are not only transparent, upfront and fair, but that all costs incurred are in accordance with the terms of occupational leases.
Published in September last year, the professional statement aims to improve the administration of commercial service charges across the sector, encouraging the timely issue of budgets and year end certificates, as well as providing detailed guidance as to the resolution of disputes and advice on technical matters, such as the way service charge monies are held.
Shirley Greenlees, Director of Harris Lamb’s property management team, said: “Ultimately, the new statement has been brought into force to make managing properties, and the relationship between tenant, client and agent, more efficient and transparent, in an effort to protect all parties.”
“There have been previous versions of the RICS service charge code but up until now, these have only been considered as best practice and guidance. The new version of the code as a professional statement is much clearer in laying out responsibilities and expectations, removing any grey areas that could be misconstrued.”
The nine mandatory requirements set out in the professional statement are as follows:
- All expenditure that an owner and manager seek to recover must be in accordance with the terms of the lease;
- Owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of services;
- Owners and managers must ensure that service charge budgets, including appropriate explanatory commentary, are issued annually to all tenants;
- 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;
- Owners and managers must ensure that a service charge apportionment matrix for their property is provided annually to all tenants;
- Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts;
- 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;
- 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;
- 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.
Shirley added: “These requirements are also supported by a number of core principles within the professional statement, and we as surveyors are expected to use our professional judgement to ascertain the appropriate and reasonable levels of compliance, according to the circumstances.
“The core principles focus on transparency in communication, and reporting on budgets and fees, in an effort to bring consistency to communications between all parties.”
“The mandatory nature of the key issues, and clarified guidelines across the core principles, will play an important part in developing trust, and improving the relationships between all parties, with tenants and landlords being assured that managing agents not fully compliant with the 2019 requirements will be held accountable and may be subject to disciplinary action.”
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