Are You up on the New Service Charges Regime?

It’s now three months since the RICS issued its new rules on commercial property service charges. But have landlords and property managers got to grips with their additional obligations?

The new rules are contained within the RICS’ professional statement: ‘Service Charges in Commercial Property’. They set a standard of fairness and transparency in landlords’ handling of service charges. It’s about balancing the need to cover the cost of running and maintaining a commercial building, and a tenant’s entitlement to a fair deal – including the right to be told exactly what their service charge is for and the terms on which it is payable.

Specific requirements include:

• All expenditure that the owner and manager seek to recover mustbe in accordance with the terms of the lease.

• No more than 100% of the proper and actual costs of the provision or supply of services must be sought.

• Service charge budgets and accompanying explanations, plus a service charge apportionment matrix for the property, must be issued annually to tenants.

• Service charge monies must be held in one or more discrete bank accounts.

One of the main aims of the professional statement is to improve general standards and best practice. In doing that, the new regime is likely to lead to a reduced number of disputes arising out of the sums landlords request. Both parties should know where they stand from the outset, and this spirit of openness about the charges that will apply over time should place both landlords and tenants in a better position to organise their finances. 

It’s a situation that we, as commercial property solicitors, are pleased to have seen develop. Too often, problems between landlords and tenants arise out of miscommunication around service charges, and an unrealistic - even illegitimate – approach to the type and level of charges that a tenant is asked to pay. These new rules have already started to tidy things up. Most landlords appear to be onboard with the requirements. And those that are yet to fully embrace this better approach to commercial arrangements with tenants will, we think, soon begin to see reasons to do so. 

For advice on service charges, or any aspect of commercial property ownership, management or occupation, contact our conveyancing department on 01264 353411 and ask to speak to a member of the commercial team or email commercial@bsandi.co.uk.