5th February 2019
Commercial service charges have the potential to be a highly contentious issue for tenants and landlords, with disputes often occurring in an increasingly complex area of commercial property management.
Industry guidance for the management and administration of service charges was first introduced nearly twenty-three years ago. Since its original inception in 1996, the Royal Institution of Chartered Surveyors (“RICS”) Service Charge Code (“the Code”) has had a profound effect within commercial property, with the original aim of promoting a fairer and more transparent industry standard. The Code offered a series of principles and requirements to ensure ‘best practice’; however these were not mandatory on RICS members or other parties.
The Code has now being published as a 1st Edition RICS professional statement, taking effect from 1 April 2019. Endorsed by the Law Society, it offers twenty-four core principles and nine mandatory requirements, which are to be used in conjunction with each other to influence the management and administration of service charges. The core principles underpin the mandatory requirements that RICS members and regulated firms involved in this area must comply with. Unlike the statutory protection that is afforded for residential tenants in relation to service charges, the new commercial service charge code is not mandatory for non-RICS members and some landlords may choose not to comply. However, these Landlords may find it harder to let their properties when faced with competition from properties or centres with more transparent service charge regimes. Proper and effective drafting of service charge provisions is therefore increasingly important for landlords and tenants in facilitating their commercial goals.
The new mandatory obligations are effective from April 2019.
They are as follows:
As with the previous service charge code, these new changes cannot override an existing lease. However, as a result of the increased regulatory prominence of these mandatory obligations, all parties should carefully consider the professional statement prior to entering into a new or renewal lease. The Commercial Property team at Mundays are ready to advise you with respect to service charge provisions in leases, as well as general guidance on commercial leases and other property transactions.
The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update.
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