RICS expands Commercial Property Service Charge Code of Practice

16 March 2009

RICS (The Royal Institution of Chartered Surveyors) has launched two new information papers to supplement the RICS Code of Practice: Service Charges in Commercial Property. Tenant alterations and sinking funds, reserve funds and depreciation charges have been addressed in these separate information papers published today.

Service Charges and Tenant Alterations sets out the issues surrounding apportionment of service charges where a tenant makes alterations to a commercial property; the information paper includes points on all tenant alterations including mezzanine floors and the base position on apportionment of the service charge, whether the lease specifies the basis of apportionment or where the lease does not specify this.

Commenting on the Information paper RICS spokesperson Peter Forrester says:

"Where a tenant carries out alterations to premises which increases (or decreases) the floor area of the premises, issues can arise over the extent to which the tenant's proportion of the landlord's service charge should be adjusted and the resultant impact on the proportion of the service charge payable by other tenants. These matters can be problematic; however the answers can usually be found in the precise wording of the lease. The guidance is intended to help those involved in apportionment to deal correctly with alterations; being able to identify the answer clearly and fairly will save a lot of time and money."

Sinking Funds, Reserve Funds and Depreciation Charges clarifies an area that is often fraught with financial and administrative difficulties; in particular it will assist with understanding arrangements on financial provision for future repairs or replacements under the terms of the lease. It deals with matters to be considered by owners, occupiers, managers and drafting solicitors including:

• making provisions for future service charge expenditure
• Lease term, FRI (Full Repairing and Insuring Lease) and IRI (Internal Repairing and Insuring Lease)
• Spreading the costs of works carried out (payment plans)

The Guidance also provides further information based on, but developing, the RICS Code of Practice, Service Charges in Commercial Property.

Chris Edwards, RICS Spokesperson explains:

"With the average lease length now around only six years difficulties often arise in long term maintenance costs. Understanding how to draft for repairs and replacement in the lease needs to be considered as every building will require its own solution. Both landlord and tenant should consider their respective needs and the benefits to be achieved through the agreed solution."

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