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Service charges – recovery of more than 100%?

We reported in our February 2019 edition (p24) that the RICS Code of Practice Service Charges in Commercial Property (1st edition) comes into force on 1 April 2019.

There is an interesting article which considers whether L might be able to claim more than 100% of service charge costs incurred, particularly if leases require various Ts to contribute a fair and reasonable proportion as determined by L’s surveyor.

Under the new Code the following mandatory requirements apply:

 

  • all expenditure that the owner seeks to recover must be in accordance with the terms of the lease;
  • owners must not seek to recover more than 100% of the proper and actual costs of the provision or supply of services, unless the percentages in the lease are fixed;
  • owners must ensure that service charge budgets (including explanatory comments) are issued annually to Ts;
  • owners must ensure that an approved set of service charge accounts showing a true and accurate record of the actual expenditure constituting the service charge are provided annually to Ts; and
  • owners must ensure that a service charge apportionment matrix for the property is provided annually to Ts.

 

The professional statement cannot override the terms of the lease.

Under the new Code no more than 100% of the actual costs incurred are recoverable from Ts.

L’s may need to consider whether recovery of a fair and reasonable proportion results in a cumulative total of service charge to be recovered exceeding 100%. The lease should be examined to establish whether variation of the apportionment is permitted. If the lease does not allow for variation, L should explore whether Ts will agree to a variation.

The article concludes that the Code does not alter practices dramatically as many of the soon-to-be mandatory requirements are already best practice, but Ls and their advisers must be familiar with the Code before 1 April 2019. Source: Charles Russell Speechlys.

 

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