RICS are due to publish the 4th edition of the code of practice for the management of service charges in commercial property (the "New Code") on 1 April 2018. This professional statement will contain a number of mandatory requirements aimed at improving standards and promoting 'best practice, uniformity, fairness and transparency' to the management and administration of service charges.
The core principles of the New Code, as currently drafted, require that professionals involved in the management of service charge accounts must act in accordance with eight core principles, including:
- An annual obligation to provide budgets, statements of actual expenditure and apportionment schedules;
- An obligation to hold the service charge monies in a discrete bank account; and
- A restriction on recovery of expenditure which is not expended in accordance with the terms of the lease.
The New Code also specifies a number of areas of best practice designed to support and further the core principles, including guidance on the level of management charges and fees that may be levied, a requirement for transparency regarding other income sources beneficial to the manager or provider of the services (e.g. insurance commissions) and a requirement of value for money in the procurement of services.
RICS are currently running a consultation on the provisions of the New Code, with a deadline for providing comments of 6 December 2017. The New Code will no doubt be oft quoted, and may have a wide reaching impact on the future operation of service charges. Therefore all stakeholders in commercial real estate should not miss the opportunity to have their say.