New Professional Statement imposing mandatory service charges obligations in relation to commercial property
On 1 April 2019 the Royal Institute for Chartered Surveyors (RICS) introduced a Professional Statement for its members that it hopes will encourage landlords and managing agents to provide a more transparent and up front service providing clarity, certainty and protection for businesses from hidden costs.
The Professional Statement follows growing concerns in relation to property management with the substantive difference from previous “codes of practice” being that it creates “mandatory requirements” for RICS members and firms regulated by them who are involved crucially in the management of service charge accounts.
The Professional Statement also includes a number of core principles and suggestions of best practice that, whilst not being mandatory, members are expected to follow.
The following principles are now mandatory:
- All expenditure that the 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 the services.
- Owners and managers must ensure that service charge budgets, include appropriate explanatory commentary and 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.
The RICS have indicated that they are willing and able to take disciplinary action against members found to be in breach of the Professional Statement. It should be noted that this does not override existing lease terms but the new statement can still be useful if read in line with lease terms, to enable better interpretation of the lease.
The Professional Statement, while only applying to RICS members, appears likely to drive change in the industry generally. If you require further advice on how the code will impact upon you or your business please do not hesitate to contact Andre Demushi on 020 7288 4781 or firstname.lastname@example.org.