From 1 April 2019, the Royal Institute of Chartered Surveyors (RICS) will introduce their new Service Charge professional statement affecting landlords and tenants of commercial property.
The changes will apply to RICS members and regulated firms throughout the UK. The new service charge requirements are more prescriptive than the current regime and set out mandatory requirements for landlords. And while much of the guidance remains the same as the previous Code of Practice, there are a number of updates that will affect those in the industry.
It will also have the regulatory effect of formalising the Code within the RICS best practice framework.
The new changes are particularly noteworthy for those involved as disputes between landlords and tenants often relate to the level of service charges levied. Therefore both parties — landlords and tenants — will need to be aware of the requirements of the updated service charge regime.
Guidance for the management and administration of service charges in commercial property was first published in 1996. This is the 6th iteration of what has become known as the Service Charge Code. In the 23 years since its inception, the Code is generally considered to have had a positive impact on the commercial property sector and has facilitated major improvements in standards of delivery and accountability for service charges.
Aims and objectives of the professional statement
Under the new Service Charge professional statement, RICS members and regulated firms must comply with the following mandatory requirements:
Statement v Lease
One important point to note is that the new Statement cannot override lease terms. However, it is advised that service charge provisions must be laid out and considered in conjunction with the statement, in order to help identify the best interpretation of the lease, and to ensure compliance as far as possible. Failure to do so would be taken into consideration in the event of a dispute between tenant and landlord.
It is hoped that the new Statement will continue to improve the standard of delivery in landlord services and provide accountability for spending what is effectively tenants’ money.
In the main managing agents and landlords already abide by the principles of the existing code, but naturally, there are many instances where best practice has been ignored, in some cases to extreme degrees. Such behaviour is, of course, unacceptable and it is moments such as these that RICS are looking to significantly reduce, not to mention improving procedures and landlord/tenant relationships across the board.
What should landlords be doing to ensure they are compliant?
Tenants are likely to be better informed of their rights in relation to service charges incurred and more confident in service charge disputes with landlords. Therefore in the build up to 1 April 2019, landlords should ensure that they are able to meet the mandatory requirements set out above.
It will also be interesting to consider the effect on lease renewal proceedings under the Landlord and Tenant Act 1954 and whether tenants’ increasingly request to modernise the service charge arrangements in a renewal lease, in line with the professional statement.
The RICS will also take account of the professional statement when deciding if a RICS member has acted with reasonable competence during disciplinary proceedings and it is likely to be referred to during professional negligence claims against surveyors.
If you would like to discuss a service charge issue please contact Stephen Meade in our Commercial Disputes team on firstname.lastname@example.org