Changes Coming to RICS Code of Practice
The Royal Institution of Chartered Surveyors (“RICS”) Code of Practice, Service Charges in Commercial Property (3rd editions) is to be replaced by the Service Charges in Commercial Property 1st edition, which will come into effect on 1 April 2019.
This new edition provides mandatory obligations for RICS members and RICS regulated firms and sets out core principles and objectives for best practice in relation to the management and administration of service charges. It has also been published as a professional statement rather than a code, meaning that it has a mandatory effect on RICS members and RICS regulated firms.
There are nine obligations under the statement which have now been made mandatory:
- All expenditure sought to be recovered must be done so in accordance with the terms of the lease.
- No more than 100% of the proper and actual costs, incurred in the provision or supply of services, may be recovered.
- Owners and managers must issue annual service charge budgets to all tenants and must include appropriate explanatory commentary.
- An approved set of service charge accounts must be provided to tenants annually and must be a true and accurate record of the actual expenditure.
- Tenants must be provided with a service charge apportionment matrix annually.
- Service charge monies must be held in a bank account.
- Any interest earned on service charge accounts must be credited to the service charge accounts.
- In the event of a dispute arising, tenants should be advised that any service charge monies withheld by the tenant should not equal more than the sum in dispute.
- In the event of a dispute arising, landlords should be advised that following the resolution of any such dispute, any service charge that has been raised incorrectly should be appropriately adjusted without undue delay.
The best practice recommendations have been expanded to include the following:
- ‘Management Fee’ is to be interpreted as the fee charged by both the manager, and any related entities, for the management and supervision of the services for a site. It also covers the cost of site specific management staff. Whether full or part time, including any accommodation and/or ancillary costs.
- Where a lease provides for a cap on the management fees chargeable this refers to the fee the manager receives, not the on site management costs.
- There should be transparency in relation to any income or benefits received by the manager, or related entities, as a result of the management or provision of the services. This should also be declared in the annual service charge accounts.
- Where appropriate, any budgets and accounts should be issued with a comparative report, comparing the costs against those from the previous year.
The statement will apply to all new leases but will not be relevant to renewal leases. It is also important to note that the contents of the statement cannot override the terms of the lease itself, which will take precedence.
For more information, contact our Real Estate team on 0345 070 6000.