MacRoberts Real Estate Law e-update 28/01/08

RICS CODE OF PRACTICE FOR SERVICE CHARGES IN COMMERCIAL PROPERTY

Not everyone seems to be aware that on 11 September 2007 a code of practice for service charges in commercial property came into effect. Technically this has the status simply of a guidance note but in reality as it purports to set out what is regarded as best practice in relation to such matters it will become a very influential document. Where for example service charges become a matter of litigation, the courts may well require landlord, their managers or solicitors to explain why they decided not to adopt the practice recommended by this code.

The code has been prepared so that it should be applied to properties which are the subject of new or renewed leases. Therefore, even if a lease is simply being renewed it is suggested that unless there is good reason otherwise, the service charging details within the original lease should be brought up to the standard set out in the code. This is even suggested in the case of occupiers who had not previously paid for certain services within the original lease albeit that the tenant may seek an
adjustment in the rent to reflect such increased charges.

The code recognises that service charges should be "not for profit, not for loss" which means that costs will require to be transparent albeit that reasonable profits can be made by suppliers of services and of course managers will be entitled to make a reasonable profit on their management services. There must be no question however of "double profit" taking.

Managers will be expected to issue budget forecasts to occupiers with an explanatory commentary prior to the start of each service charge year with reconciliations following that year within four months of the year end.

The code covers many topics including management, communications between parties, transparency, service standards and service provision, administration and administration fees, additional shopping centre services, common methods of apportionment and dispute resolution and it also incorporates several helpful appendices including worked examples and guidance notes with industry standard cost headings. The code does not include a model service charges schedule which can be neatly lifted from the code and planted into new FRI lease styles. The service charges provisions in any new (and arguably also renewed) FRI lease after 1 April 2008 should however have due regard to this code of practice or landlords and their solicitors may well be asked to justify the reasons for any departures. In cases even of professional negligence made against the practitioners, the code is likely to be extremely influential. You have been warned!

If you require any further information please contact Gordon Thomson or Laurence Fraser on 0141 332 9988 

© MacRoberts 2008