Service charge conflicts a thing for the past?

From April 2007, members of the RICS (Royal Institution of Chartered Surveyors) are required to adopt a new code of practice, aimed at removing service charges as an area of conflict between property owners and their tenants, says commercial property specialist Underwoods.

The new code will go some way to ensure best practice, and ensure the development of trust and transparency between commercial property owners and occupiers. To ensure best practice under the code, services should be procured on a value for money basis and competitive quotations obtained for the supply of those services. Also under the new code, tenants can expect to receive certified accounts from the building owner within four months of the service charge year end and receive estimates of the forthcoming expenditure, with explanatory comments one month in advance.

Paul Dennell, a Partner and Head of Property Management Division at Underwoods, says: “The upgrading of the code offers enormous strides forward in improving the standard of service charge management and will go some way to eradicating one of the most contentious areas of dispute.”

He adds: “Service charges that are poorly managed are a cause of frequent dissatisfaction between building owners and occupiers. The new code will also improve communications so that not only are services delivered effectively but the occupiers will be able to understand what they can expect to receive and how much they are required to pay.”

Underwoods also advises that in order for best practice to be achieved across the board, lease documentation will need to be modernised and brought into line with the new code. It will therefore be vital for all parties - owners, investors, financiers, occupiers and their respective consultants, as well as the advising solicitors - to ensure that all new leases are drafted in accordance with the best practice as set out in the code.

Five other leading commercial property bodies - The British Property Federation, The British Retail Consortium, The British Council for Offices, The British Council of Shopping Centres and The Property Managers Association - have also endorsed the code, developed by the RICS.