Changes ahead for commercial property tenants?

Service charges in residential leases are subject to stringent and clear regulations. This is not the case with commercial leases.

RICS Service Charge Code

As service charges can be a source of contention between landlords and tenants, the Royal Institution of Chartered Surveyors (RICS) published a code, currently in its 3rd edition, to set out best practice for surveyors to follow in providing services and operating service charge accounts. The intention behind the introduction of the code was to improve transparency and communication between the landlord and the tenant, and to reduce the risk of disputes arising. Although the code is addressed to surveyors, it has to an extent influenced the negotiation of the wording of service charge clauses in commercial leases to ensure that such clauses are “code compliant”.

A consultation process was launched last year by RICS on a 4th edition of the code. Responses had to be made by the 17th December, and the 4th edition is due to be launched on the 1st April 2018.

4th edition of the Service Charge Code

The current 3rd edition of the Service Charge Code is classed as a “RICS Code of Practice” to provide users with recommendations for accepted good practice as followed by conscientious practitioners. The 4th edition of the code will be a significant change, as the new code will become a “RICS professional statement”, with mandatory requirements to which surveyors will be expected to adhere, and there may be legal and/or disciplinary consequences for RICS members for departing from those requirements. There will be guidance on best practice that will illustrate how the mandatory requirements should be applied.

The aims of the new mandatory requirements include:

• Ensuring service charges to commercial tenants are transparent, upfront and fair.
• Providing that any costs incurred to repair or maintain are in accordance with the terms of the lease.

The new edition aims for any potential or future changes to service charge costs to be made clear and obvious to tenants at the outset. It also intends that any costs not specifically mentioned in a lease are not recoverable from the tenants. It will also provide guidance on more technical matters, including the way in which service charge monies should be held within bank accounts. Financial competence, timeliness, transparency, reduction of disputes and value for money are some of the key themes throughout the new edition.

If you require further assistance, please contact any member of the Edwin Coe Property team.

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