Dispute Resolution

RICS has published the latest edition of its service charge code for commercial properties. This blog provides an introductory summary of the key points.

1. The new regime comes into force on 1 April 2019

2. The new code is a professional statement

This means that regulated firms and RICS members must comply with nine new mandatory requirements at all times. However…….

3. Existing leases are unaffected by the professional statement

RICS advises that existing clauses should be interpreted in line with the new regime. That is not, however, how a court would interpret a clause in a lease that was drafted before the code came into force. It may be more persuasive for leases that come into force after the code.

4. Any costs recovered must be in line with the terms of the lease

Two new mandatory requirements provide for what can be recovered from the tenant by the owner and manager of the property. Firstly, any costs not specifically outlined in the lease are not recoverable. Secondly, no more than 100% of the proper and actual costs of the supply of services can be recovered.

5. Tenants must now receive annual updates

To improve transparency, tenants must now be provided each year with service charge budgets (including an explanatory commentary), a set of service charge accounts showing an accurate record of expenditure, and a service charge apportionment matrix.

6. Service charge payments must be held in a bank account

In accordance with the professional statement, service charge monies paid by a tenant must now be held in discrete or virtual bank accounts. Interest earned on those accounts must be credited back to the account after appropriate deductions have been made.

7. There is a greater emphasis on the resolution of disputes

8. Disputes should be resolved quickly and efficiently

As a matter of best practice disputes should be resolved firstly by Alternative Disputes Resolution, but again, it is the dispute resolution clause in the lease, if any, that will govern this.

9. The new code introduces a service charge handover procedure

Guidance is offered on how to reconcile service charge accounts, how to effectively transfer supplier information, and how to handover tenant and property financial details on sale of property.

10. The new code affects commercial property only

 

If you have any queries about the new service charge regime, or would like to know more, please get in touch with a member of our property litigation team.

Emily O'Sullivan

Emily is a trainee solicitor in Brodies' Property Litigation team and is based in Edinburgh.

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