Commercial Property Leases and More

March 2019

Commercial property agents who are members of the Royal Institute of Chartered Surveyors (RICS) or who are regulated by RICS will need to comply with the RICS Professional Statement ‘Service charges in commercial property (1st edition) (‘the Statement’) which comes into force on the 01 April 2019.

The Statement replaces the RICS Service Charge Codes which were previously only guidance around best practice for the operation of service charge in commercial properties.

The Statement imposes the following mandatory requirements:

1. All expenditure to be recovered from tenants must be in accordance with the lease;

2. Owners and managers must not seek to recover more than 100% of the proper and actual costs of the services;

3. Each year owners and managers must be provided with service charge budgets, including appropriate explanatory commentary;

4. Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts;

5. Interest earned on these bank accounts must be credited to the service charge account (after any necessary deductions have been made);

6. Owners and managers must ensure that an approved set of service charge accounts (which have been certified by an appropriately qualified person) are provided annually to tenants;

7. Owners and managers must ensure that a service charge apportionment schedule is provided annually to tenants;

8. In respect of disputes when acting for a tenant, the manager must advise the tenant that if money is being withheld, it is only the amount in dispute which is being withheld; and

9. In respect of an accounting error when acting on behalf of the landlord, managers must inform the landlord that the service charge has been raised incorrectly and will be adjusted without any undue delay.

These mandatory requirements are supported by core principles. One of the core principles states that management fees should be on a fixed price basis and should reflect the actual costs of managing the services.

If an agent who is a RICS member or is regulated by RICS departs from these best practices, they must do so for justifiable reasons, or they could face legal and/or disciplinary action if they commit a serious breach.

This Statement has been introduced to make service charge costs transparent, hold agents to account and ensure that service charge budgets and end of year demands are issued in a timely manner.

It is good governance to follow the Statement whether or not you are a RICS member or regulated by RICS.

Updated Service Management Agreements - Commercial Property and Commercial Property Lettings Agency Terms and Conditions

We have updated the service charge provisions in our template agreements and terms and conditions to incorporate the requirements relating to the issue of annual service charge budgets and apportionment schedules and management fees.

Updated Leases of Part of an Office, Shopping Centre or Industrial Estate

If a landlord will be engaging a commercial property agent to manage the service charge and the agent is regulated by RICS then the lease should be compliant with the Statement.

We have updated the service charge provisions in our template leases of part of an office block, shopping centre or industrial estate to incorporate the requirements relating to the issue of annual service charge budgets and apportionment schedules to the tenant.

Updated Estimate Service Charge Statement and Final Service Charge Statement

We have updated these statements to incorporate the requirements relating to the addition of explanatory commentary to be submitted with the service charge budget and certification of the final service charge statement.

New Service Charge Apportionment Schedule template

The new Simply-Docs template Service Charge Apportionment Schedule can be used by property managers, agents and/or commercial landlords to set how the service charge costs are allocated between the parties who benefit from the services. Under the Statement it is a requirement that RICS members must issue an apportionment schedule annually to the Tenant. It is good governance to follow this requirement whether or not you are subject to the Statement.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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