Commercial service charge changes: have your say

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Commercial service charge changes: have your say

20 Nov 2017

The tide may finally be turning for tenants when it comes to service charge. For many years now, landlords have effectively been able to operate unregulated when running service charges under a commercial lease. This is in part due to the fact that, despite the RICS code of practice being in its third edition, compliance with it has never been mandatory.

However, with its 4th edition, the RICS is developing “new mandatory requirements to ensure service charges to commercial tenants are transparent, upfront and fair” and they would like your input into this process. Owners, tenants and property professionals involved in the managing of commercial service charges have until 6th December to have their say on the new code.

Have your say at the link below:

http://www.rics.org/uk/news/news-insight/press-releases/unfair-property-service-charges/

The new edition is based around the following eight core principles, which professionals managing service charge accounts must follow:

  • They must seek to recover no more than 100% of the proper and actual costs of the services unless the lease explicitly provides otherwise.
  • They must ensure that service charge budgets, including appropriate explanatory commentary, are issued annually to all tenants.
  • They 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.
  • They must ensure that a service charge apportionment schedule for their property is provided annually to all tenants.
  • All expenditure that they seek to recover must be in accordance with the terms of the lease.
  • Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts.
  • All 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, RICS members 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.

The above principles above simply represent what is considered the minimum acceptable standard of performance for RICS professionals and firms. The proposals set out further principals and guidance that practitioners should follow in order to ensure best practice.

If you are a professional, landlord or tenant, these proposals could have a big impact on how your service charge is run. Therefore, you should not miss out on this opportunity to have your say. The consultation period ends on the 6th December and the 4th edition of the RICS code of practice is intended to come into force on the 1st April 2018.

If you would like more information on this or in relation to other leasehold matters, please contact a member of our Landlord & Tenant team on 0161 832 3434.

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