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spot the difference - second edition of the Code of Practice for Service Charges in Commercial Property

17 November 2011

Introduction

The Royal Institution of Chartered Surveyors (RICS) second edition of the Code of Practice for Service Charges in Commercial Property (the code) came into force on 1 October 2011. So what are the main changes from the first edition?

Whats new?

The second edition builds on the core principles of the first edition in continuing to promote best practice, uniformity, fairness and transparency in the management and administration of service charges in commercial property, in an attempt to reduce causes of disputes.

In an effort to make the code more practical for users, the core principles are now set out at the start, with the guidance set out thereafter. The code now places more emphasis on alternative dispute resolution (ADR), suggesting that all new and renewal leases contain ADR clauses allowing the parties to settle disputes more quickly and cost effectively. The Central London Law Society and the Practical Law Company have both drafted standard service charge clauses reflecting the guidance in the code.

However, there are still some inconsistencies within the code that need to be ironed out. For example, the benchmarking of time varies between either completion or to the completion date and, with regard to supplier contracts, there is no clarity on whether the responsibility for payments due after the termination of a contract will pass to the buyer for the period from completion until termination.

Force of the code

The primary function of the code is to act as a tool in the interpretation of a lease to ensure the effective management of services without having the ability to override the terms of a lease. It continues to affect managing agents, landlords, tenants and their respective professional advisers.

The code has the status of a guidance note. Although practitioners are not required to follow the codes recommendations, the court will look to compliance with the code as a standard of reasonable competence when an allegation of professional negligence is made; however non-compliance with the code will not in itself infer negligence, this will depend on the facts of each case.

To supplement the code, RICS have now issued a series of information papers to provide an explanation of the issues surrounding handover procedures, tenant alterations, sinking funds and mixed use developments. The information papers do not set out advice on best practice and will not be a relevant consideration for claims of negligence in the same way as the code itself.

Conclusion

The impact of the code will depend largely on its inclusion into new leases, which is likely to be driven by the demands of tenants for code compliant leases. However, since there is no statutory obligation to adhere to it, some landlords may resist the inclusion of the code as it places more responsibility on them to ensure that the principles of the code are adhered to.

A full copy of the code and the information papers are available at the Royal Institution of Chartered Surveyors website.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

Mark Aldrich

Mark Aldrich

Partner and Head of Business & Professional Risk

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