Service Charges In Commercial Property

The RICS Code of Practice for Service Charges in Commercial Properties came into effect in Scotland on 11th September 2007. The Code will apply to service charges commencing on 1st April 2008 - it already applies in England.

Imperial House

The Code has been written in light of the UK Government's concern about disputes over service charges and their alleged lack of transparency. In summary it seeks to: 

* Remove services charges as an area of conflict.
* Deliver a budget to enable occupiers to forecast their overheads.
* Ensure that service charges are run "not for profit and not for loss".
* Encourage transparency and communication between landlords and tenants.

The main message is for better communication to reduce disputes between landlords and tenants. It sets out a framework for property managers to deliver services effectively and economically whilst keeping occupiers informed timeously.

Legal Status
Its legal status is as a Guidance Note only, however it is probable that the courts will take it into account when deciding whether parties acted reasonably. Also, when instructing agents, Landlords are likely to require agents to meet the standards of the Code.

Requirements
The Code sets standards to provide consistency across all types of properties, by benchmarking performance. It also requires Landlords to ensure (i) best performance of suppliers and contractors by re-tendering regularly, (ii) transparency in regard to managing agents fees and (iii) minimum standards of reporting to occupiers. 

Definitions
It also looks to provide a clearer definition as to repairs (which are usually a tenant's liability) against renewals (which are usually a landlord's liability). i.e. providing a means to resolving grey areas such as the liability for the cost of replacing plant and machinery and how refurbishments should be treated in service charge recovery.

Conclusion
In conclusion, the Code does not come up with a new way of running service charges but sets minimum standards and asks for managing agents to ensure communication with their customers.  CKD Galbraith endorses this view,as it sits with their own service standards of always communicating with clients. If you would be interested in finding out more about the code, contact Edward Holt.