Changes to the service charge regulations for commercial property
As a landlord, your carefully drafted lease with your tenant should mean that when an issue arises, you can both refer to the terms of lease to settle any problems. But what if you can't?
If there’s no lease, or if the issue that comes up isn’t covered by the lease, the Royal Institute of Chartered Surveyors (RICS) has a Code of Practice which landlords and surveyors turn to for guidance (although the code can’t override the express terms of the lease).
Within the Code of Practice, RICS sets out requirements for the management and administration of service charges relating to commercial property – some are mandatory, some are best practice. A recent overhaul of their Professional Statement led to a number of changes which took effect from 1st April 2019, and replaced the previous RICS Code of Practice.
The mandatory requirements are:
- All claimed expenditure must be in line with the terms of the lease.
- No more than 100% of the costs of the provision or supply of the services can be claimed.
- Service charge budgets (including an explanatory commentary) must be issued annually to tenants.
- An approved set of service charge accounts showing a record of actual expenditure must be provided annually to tenants
- A schedule showing how service charges are spread amongst occupiers must be provided annually to tenants.
- Service charge monies must be held in one or more bank accounts.
- All interest on service charge accounts must be credited to the service charge account, after appropriate deductions have been made.
- When acting for the tenant, practitioners must advise their clients that any service charge payment withheld by the tenant should reflect only the actual sums in dispute.
- When acting for the landlord, practitioners must advise their clients that following resolution of a dispute, any incorrect service charge should be adjusted to reflect the error without undue delay.
In order to avoid future disputes, it would be good practice for landlords to review their lease terms and make sure they have adopted the above procedure.
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