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Service charges in commercial property
In multi - tenanted buildings service charges are probably one of the most important elements of the relationship between landlord and tenant and one that can lead to the most disputes, be they informal or formal. April 2007 sees the long awaited introduction of the Code of Practice for Service Charges in commercial property which is to be launched by the RICS with endorsement from British Property Federation (BPF), British Council for Offices (BCO), British Council for Shopping Centres (BCSC), British Retail Consortium (BRC) and Property Managers Association (PMA).
Michael Hare BSc FRICS FNAEA FICBA, partner in charge of the commercial division at Harrogate based Chartered Surveyors and property consultants Feather Smailes & Scales LLP, says the whole point of the new Code is to encourage transparency and communication for all parties involved and will set out changes in relationships between owners, occupiers and agents in the hope of modernising the typical commercial lease.
RICS and the “big players” in the commercial property market (BPF, BCO, BRC, PMA etc) felt that historically the relationship between landlords and occupiers was perceived to be difficult, and the new code envisages that both sides will be able to communicate more effectively and further build an element of trust. The Code should, it is hoped, further enhance communications between the groups because both sides desire this.
The old Code had little authority and landlords particularly felt there was a need to move forward in various areas with positive initiatives on best practice, and so the new Code will actually have “Guidance Note” status, which for RICS members means it represents “best practice” and whilst it does not have to followed, it is likely that when an allegation of negligence is made against a Chartered Surveyor, the court is likely to take account of the content of this new Code in deciding whether or not the practitioner acted with reasonable competence.
The RICS recommends that the opportunity is taken after April 2007, on either lease renewal or the grant of a new lease, that all such new leases follow the best practice as set out in the revised Code. From a practical point of view modernising service charge provisions on an “as and when basis” may lead to a dual service charge, and interim measures are therefore likely to be necessary during the transitional period.
The general principal adopted by the new Code is that a service charge is the means by which the costs of providing services to a property are recovered from the users of those services. The total costs should not inflated for profit, and similarly there should be no residual loss left for the owner to pay. Salient points of the new Code include:
In essence therefore the main strands of the new Code are that service charges are run on a “not for profit, not for loss basis” and that there should be regular and open communication between the parties. The intention is that if these principles can be followed along with the detailed best practice set out in the Code, the number of service charge disputes can be significantly reduced.
Michael Hare is one of the ICBA course presenters. If you would like any further info on ICBA courses, qualifications or membership, please email email@example.com