RICS Code of Practice news update
RICS Code of Practice for Service Charges in Commercial Property to become a Professional Statement.
As we highlighted in our news article earlier this month, RICS have issued a Draft Professional Statement, which they propose as an update to the current Third Edition of the Code of Practice for Service Charges in Commercial Property.
The draft consultation version of the current Code of Practice has a target implementation date of 1st April 2018. The consultation process runs until 6th December 2017.
All interested parties are invited by RICS to review the proposals and comment online, by visiting this link. But hurry, as time is running out:
We have now carried out a more detailed review of the proposals to ensure that you will be able to use our software to meet the new requirements, and have reproduced the findings of our review below. We hope this article helps you in your understanding of the likely changes.
The significance of the change from current Code of Practice to new Professional Statement should not be underestimated. It fundamentally changes what has been considered best practice into mandatory requirements – rules to which all RICS members and member firms are expected to adhere.
The draft changes make it very clear: in section 1.2, under “The core principles”, eight key areas will now be considered as mandatory “must do’s”. These are highlighted in the draft and summarised below. Their importance is made even clearer by their repetition throughout the document, several of them multiple times.
Professionals involved in the management of service charge accounts must act in accordance with the following principles:
- Owners and managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services unless the lease of the property gives them the explicit right to do so.
- Owners and managers must ensure that service charge budgets, including appropriate explanatory commentary, are issued annually to all tenants.
- Owners and managers must ensure that a signed statement showing a true and accurate record of the actual expenditure constituting the service charge is provided annually to all tenants.
- Owners and managers must ensure that a service charge apportionment schedule for their property is provided annually to all tenants.
- All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.
- Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts.
- All interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made. This applies, for instance, to bank charges, tax, etc.
- Where acting on behalf of a tenant, RICS members must advise their clients that if a dispute exists any service charge payment withheld by the tenant should reflect only the actual sums in dispute.
In terms of overall content, the draft is not too dissimilar to the Third Edition of the Current Code. In line with the change of classification of the document, the term “Code” has been replaced by “Professional Statement” and there is a clear difference in emphasis, with previous references to “should” changed to “will” throughout the document.
Sections of the old code have also been moved to more logical places, while other sections have been expanded to promote better understanding and clarity.
All our property management software supports compliance to RICS regulations. If you are a Trace customer, we will have already been in contact with our full analysis of how the changes could affect you, and you can log in for a more detailed analysis.
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