Commercial insurance article archive
Service charges - the new RICS code of practice
April 1st saw the introduction of a new code of practice for service charges in commercial property from the Royal Institution of Chartered Surveyors (Rics) in order to clear up the disputes between landlords and tenants that occur over the charges.
Service charges are often an area of conflict between landlords and tenants and the new code hopes to remove the lack of transparency in the system by calling on landlords to provide their tenants with a predictable budget for the overheads that may be incurred during a tenancy and urged them to give good value for money.
The code had been launched in the previous summer but only now has it begun to affect the work of commercial property investors.
One major change is to bring the disclosure of a budget for service charges to at least a month before the start of a new service charge year, while also getting landlords to clearly set out the reasons for the charges being made. This is due to Rics desire to make the system "not for profit, not for loss" as there has been a concern that nefarious property owners could exploit the system to squeeze money out of their tenants.
Greater transparency is set to become part of the system as the new code instructs landlords to issue a certified account to their tenant within four months of the end of a service charge year to allow tenants to question the charges. In addition landlords must warn tenants as soon as possible if the charge is set to be more than two per cent higher than initially budgeted.
Further innovations include the establishment of a standard cost coding system so that tenants can compare the charges they receive with other buildings, allowing them to have an idea of the charges incurred by other properties in the local area if they are thinking of moving.
Commenting on the introduction of the code, Christopher Edwards, chairman of the industry group said: "By setting down best practice we intend to help owners, occupiers, managers and the advisers, who create and deliver the deals, a simple set of standards that all users of commercial property can expect.
"This Code will help ensure that disputes between owners and occupiers on service charge matters will become a thing of the past."
Liz Peace, chief executive of the British Property Federation, added her voice of support to the scheme, saying: "The best landlords take responsibility for the service standards their tenants receive; when this becomes the norm good practice will be achieved. The principles enshrined in the code are a step forward and I would urge all parties in the industry to familiarise themselves with them."
In total, the Rics code received the full support from five leading commercial property bodies - the British Property Federation, the British Retail Consortium, the British Council for Offices, the British Council of Shopping Centres and the Property Managers Association - suggesting that it is seen as a forward step by a large proportion of the industry.
04 May 2007