Service Charges: Can I Recover More Than 100%?

Question

I am the managing agent of an office building with retail premises on the ground floor and offices on the first, second and third floors. I have just issued the service charge budgets for the year ended 31 December 2019. The shop tenant has queried its contribution to the service charge, which the lease states is a "fair and reasonable proportion" as determined by the landlord's surveyor. This has been determined at 33% of the total service charge expenditure. The tenant also says that it will not contribute to the costs of newly installed CCTV because such costs are not covered in its lease. I have checked the tenant's lease and it does not appear to contain a right to recover the CCTV costs. I have also reviewed the service charge apportionments for the building, which are based on square footage, and the office tenant contributes 75%. What steps are required of me as a RICS member to address these queries?

Answer

Under the existing RICS code of practice, Service Charges in Commercial Property (third edition), best practice requires that no more than 100% of the actual costs incurred are recovered from the tenants, and recovery must be in accordance with the terms of the lease. Compliance with this guidance would prevent the apportionment that has been applied here because it exceeds 100% and may prevent recovery of the CCTV costs. Under the new RICS professional statement, Service Charges in Commercial Property, which comes into force on 1 April 2019, these elements of best practice are now mandatory requirements and RICS members must comply with them. Non-compliance will not impact on the tenant's liability to pay service charges but may have regulatory and disciplinary consequences. You must comply with the new professional statement prohibiting recovery in excess of 100% of actual costs insofar as the terms of the lease allow. You must not recover the CCTV costs unless the lease contains a sweeper clause that is wide enough to encompass such costs.

Explanation

The new professional statement will apply to RICS members and firms regulated by RICS, replacing the existing code of practice from 1 April 2019. It introduces mandatory requirements alongside existing best practice provisions. Members must not depart from the provisions of the professional statement. In respect of the best practice provisions, the RICS recognises that there may be exceptional circumstances in which it is appropriate for a member to depart from them.

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