New guidelines relating to commercial property service charges have now come into effect in a move designed to protect tenants from unscrupulous landlords and introducing greater transparency in the sector.
The requirements, introduced by the Royal Institution of Chartered Surveyors (RICS), are also expected to reduce the causes of disputes and provide guidance on resolution.
‘The guidelines act as a best practice document that provides a benchmark by which all those involved with the commercial property sector should set their own code of conduct,’ said Lisa Evans, Head of Property at Kirwans law firm.
‘The requirement for greater explanation from landlords and agents about service charge costs and what exclusions should be made promotes a greater level of transparency and understanding around what are often seen by occupiers as hidden and unfair costs,’ she explained.
She pointed out that landlords should benefit too, with the statement including an acknowledgement that when it comes to the Minimum Energy Efficiency Standards, there may be cases whereby energy efficiency improvements could comprise a legitimate service charge.
The statement will be applicable to all service charge periods starting from April 2019, with the nine mandatory requirements published by the RICS covering points such as ensuring budgets are accompanied by explanatory notes and show actual expenditure, with interest earned detailed and credited to the service charge accounts.
The aims and objectives include improving general standards and promoting best practice, uniformity, fairness and transparency in the management and administration of services charges in commercial property.
They also include a requirement to ensure the timely issue of budgets and year end certificates and aim to reduce the causes of disputes and to provide guidance on resolution, as well as providing guidance to solicitors, their clients (whether owners or occupiers) and managers of service charges in the negotiation, drafting, interpretation and operation of leases, in accordance with best practice.
‘The full document is extensive and explains each of the requirements in greater detail, so I would urge anyone involved in the commercial lettings industry to download the information and read it alongside their current lease to see how it compares,’ Evans said.
‘Although it may appear daunting, we should welcome the statement as its implementation ought to reduce the possibility of dispute occurring, resulting in reduced costs, improved levels of trust, and more time to spend on the business,’ she added.