At Your Service

The much anticipated RICS Professional Statement re Service Charges in Commercial Property was launched this month and the management of service charges will never be the same again!  Acknowledging the very positive impact the service charge code has had on the property industry over the 22 years since its inception, it takes matters forward by introducing mandatory requirements which must be followed by those administering service charges.  It comes into effect in April 2019.

Whilst this new Professional Statement cannot and does not over-ride the terms of any lease of commercial property, it dictates how a lease should be interpreted and how the charges are calculated and managed.  Its aim is to reduce the number of disputes which commonly arise in the service charge arena and to improve standards in the administration and management of the charges made.  It underlines the timely issuing of budgets, with an explanatory commentary, and year end accounts as required by most commercial leases which have in the past been woefully ignored.

Aimed at those managing and administering the charges, it does, for instance, require practitioners acting for tenants in dispute with their landlords over the charges made, to advise their clients that any retention of monies made from the charge allegedly due should reflect only the actual sum in dispute.  Landlords and their managing agents should, on the other hand, make sure all expenditure charged accurately reflects the meaning and effect of the lease terms and the expenditure made.  Service charge monies (including any reserve and sinking funds) must be held in discrete bank accounts and any interest earned should be credited to the appropriate service charge account.

Turning to the accounts, all costs should be transparent and management fees should be a fixed price with no hidden mark-ups.  Apportionment between the tenants of the sums expended should be demonstrably fair and reasonable reflecting the availability, benefit and use of the srvices provided – draftsmen of leases will need to take note and it will be interesting to see how this part of the Professional Statement is interpreted.  Those certifying accounts should recognise they have a duty of care to both owners and occupiers.  In fact, anyone with the commercial property field should be aware of this important Professional Statement.

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