The Royal Institution of Chartered Surveyors (RICS) Code of Practice on Service Charges for commercial premises ("the Code") was updated from 1 October 2011 (2nd edition). This is a code of best practice but failure to comply with it could be evidence of negligence by a surveyor. A surveyor might therefore require a landlord or tenant to comply with the Code when advising on which service charge provisions to include in a lease or in any disputes. Reference to the Code might be mentioned in heads of terms, which should deal with the following: -

• Service charge costs should be divided between tenants fairly according to availability, benefit and use of services with proportions calculated by floor area rather than rateable values. Landlords should pay for empty units or concessions it has given.
• Costs of improvements (beyond repair costs) and costs of initial construction should not be charged to a tenant. Parties should consider sustainability and use forms of alternative dispute resolution instead of litigation.
• Accounts should be prepared within 4 months of the end of the service charge year together with specified minimum information and a manager’s certificate. An independent accountant’s report is now suggested in place of a full audit.
• Money on account of service charges must be held in a separate account by the landlord/manager and interest that accrues must be allowed to the tenant in its service charge payments: Management fees should relate to management of the services and service charge and not the property generally. It is no longer a recommended practice to re-tender every 3 years for providers of services.

These obligations cover management companies, landlords and their agents. The Code states a tenant should pay any service charges promptly and if withholding any service charges, to withhold only the amount in dispute. The Code will generally apply to larger properties or developments and will not override the obligations contained or referred to expressly in an existing lease. It will need to be borne in mind during negotiations for a new lease, lease renewals, consultation on major works or perhaps for matters not referred to expressly or defined more fully in a lease.

If you require any further advice or assistance please contact John Southan or a member of the Property team at Wortley Byers on 01277 268357 or jsouthan@wortleybyers.co.uk.

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