New Mandatory Requirements in Update to RICS Service Charge Code

Commercial tenants in the UK already pay several billion pounds in services charges each year, and this is set to increase in line with demands and expectations on office space. It should therefore not come as a surprise that service charges are often the cause of disputes between landlords and tenants.

Guidance for landlords and agents is currently set out in the 3rd edition of the Royal Institute of Chartered Surveyors (RICS) Service Charge Code, which has been in use since 2014. The Code is 'best practice' only and doesn't impose mandatory requirements on landlords or their agents or impose sanctions for failure to comply with the Code.

A 4th edition of the Code is expected to be released in April 2018. Under the new Code, RICS members and regulated firms will be required to comply with mandatory requirements as well as the general statements of best practice.

Although the text of the 4th edition is not yet known, last year's consultation suggests that the following eight mandatory requirements will apply:

1. Owners and managers must not seek to recover more than 100% of the proper and actual costs of the service unless the lease provides otherwise
2. A service charge budget, with explanations, must be issued to tenants annually
3. An accurate, signed record of expenditure must be issued to tenants annually
4. An apportionment schedule must be issued to tenants annually
5. All costs to be recovered must be provided for in the lease
6. Service charge funds must be held in discrete bank accounts
7. Interest accrued on service charge accounts must be credited to the service charge account
8. Where a service charge dispute exists and a RICS member acts for a tenant, they must advise the tenant not to withhold more than the actual sum in dispute

Although most of these requirements are not new, it is interesting that they have been given a mandatory status. In particular, the requirement for landlords to share information with tenants will come as a welcome addition to tenants.

We wait to see the detail of the penalties that will apply but it is likely that these will include legal and/or disciplinary consequences for members who fail to comply.

If you would like to discuss what the new Code may mean for you, or you need advice on a service charge issue, please contact Michelle Bendall in our Property Litigation team on 0117 314 5326.