Service Charges in Commercial Property Second Edition

Service charges incommercial property

RICS Practice Standards, UK

2nd edition, code of practice

Service charges in commercial property2nd edition, code of practice

This new Code has been produced as part of a cross industry initiativein light of ongoing concerns about disputes over service charges andtheir alleged lack of transparency. Its stated aims are:

• To improve general standards and promote best practice, uniformity,fairness and transparency in the management and administration ofservices charges in commercial property.

• To ensure timely issue of budgets and year end certificates.

• To reduce the causes of disputes and to give guidance to resolvingdisputes where these do occur.

• To provide guidance to solicitors, their clients (be they owners oroccupiers) and managers of service charges in the negotiation,drafting, interpretation and operation of leases in accordance withbest practice.

This Code recognises the lease as paramount and advises owners,occupiers and professional advisers to interpret leases as far aspossible in line with the Code, and to modernise leases whenopportunities arise, such as during new lettings or renewals.

rics.org/standards rics.org/standards

GN 24/2011

Service charges in commercial propertyRICS code of practice

2nd edition (GN 24/2011)

Acknowledgments

The extracts, (1), (2), (3), p.16, ‘Barriers to accounting change’ and Figure 2, p.24, ‘Managing agent’s sign off’, from Property Management, Vol.29No.1, 2011, ‘Accounting for service charges in the UK commercial sector: barriers to change and the quest for best practice’ are reproduced in thispublication with kind permission of Emerald Group Publishing Limited, who own copyright.

RICS would like to acknowledge, with thanks, the contribution of Andrew Holt (Kingston University) to the development of the RICS Code ofPractice Service charges in commercial property, 2nd edition.

Published by the Royal Institution of Chartered Surveyors (RICS)

Surveyor Court

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Produced by the Commercial Property Professional Group of the Royal Institution of Chartered Surveyors.

First edition published 2007

ISBN 978 1 84219 668 7

© Royal Institution of Chartered Surveyors (RICS) April 2011. Copyright in all or part of this publication rests with RICS, and save by prior consentof RICS, no part or parts shall be reproduced by any means electronic, mechanical, photocopying or otherwise, now known or to be devised.

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ForewordIt is with great pleasure that I introduce to you thesecond edition of the RICS Code of Practice forService Charges in Commercial Property.

The first edition of the Code set down a marker asto the standards of management required incommercial property and this new edition builds onthat. The core principles behind the previousedition of the Code namely communication,transparency and timeliness remain key in the 2011Code.

Without doubt, awareness of the need for bettermanagement among managers, owners andoccupiers has been heightened by the Code andthe efforts of all the pan-industry bodies inpromoting it. There is evidence, albeit anecdotal,that the Code has led to improvements in thestandards of management being achieved in muchof the commercial property sector.

Increased engagement with the legal profession isa key aspiration of the new Code. Whilst the Codecannot override leases we expect that as leasesrenew or new leases are granted that they aredrafted to reflect what is seen as best practice andespoused by the Code.

Accordingly, alongside the new Code, furthercontent has been developed by the Central LondonLaw Society and the Practical Law Companysetting out alternative standard lease clauses whichreflect the Code.

The Code recognises occupiers must have a rightof challenge. It is recommended that in the futureall leases will contain ADR clauses that allow theparties to cost effectively settle disputes in servicecharge matters.

The old axiom applies ‘one can’t manage withoutmeasurement’. The Steering Group recognises thesterling work of Jones Lang LaSalle with theirOSCAR benchmarking service. For 20 years thishas provided substantial amounts of data. Withoutdoubt if the property industry is to deliver on its keyobjective of transparency enabling owners,managers and their customers to be aware of howservice charge costs are derived then anindependent and substantially larger benchmarkingservice will be the next step in this process.

The previous Code introduced Industry StandardCost Classifications. The adoption of these isrecommended as a ‘must’ in service charges goingforward. Similarly the use of independentaccountants’ certificates (rather than audits) isintroduced for the first time.

The Code is in a clearer format. The core principlesare set out at the start of the Code with guidanceand supporting information provided thereafter. Webelieve this will be simpler to follow and easier forparties to adopt and comply with.

Whether owner, occupier or manager, the Codecreates a framework of Best Practice and Icommend this second edition to you all.

C S Edwards FRICSChair Pan Industry Service Charge Code SteeringGroup

Acknowledgments

Lead Author

Peter Forrester is a Director and head of servicecharge consultancy at international propertyconsultants Savills and is an acknowledgedindustry expert and outspoken advocate of bestpractice in the management and administration ofservice charges in commercial property

Co-Author

Chris Edwards is the Principal of CommercialProperty Advisors Ltd – a niche consultancy actingfor both commercial property owners and propertyoccupiers and is the Chairman of both RICSService Charge Working Group Chairman and RICSCommercial Market Board.

With special thanks to the Service Charge WorkingGroup:

Andrew Varley, Next PLCChris Strong, AccentureHilary Rushby, Wragge and Co LLPIan Fletcher, British Property FederationJohn Gray, John Gray Service Charges LtdJustin Snoxall, The British Land Company PLCMichael Smedley, Capita SymondsPeter Preddy, DTZShani Viner, SDV Enterprises

SERVICE CHARGES IN COMMERCIAL PROPERTY | iii

Contents

Foreword iii

Acknowledgments iii

RICS guidance notes 1

Introduction 2The service charge arrangement 2New service charge lease provision 2Use of this Code of practice 2

Section 1: The Code 3

Service Charge Code (‘The Code’) 5Aims and objectives 5Core principles 5

Section 2: Recommended best practice to support the core principles 9

1 Administration 111.1 Standard and quality of service provision 111.2 Staffing and personnel 111.3 Management charges 11

1.3.1 Total cost of management 121.3.2 Management fees 121.3.3 Duties of the manager 121.3.4 Site management costs 121.3.5 Notional rent for management accommodation 13

1.4 Contract procurement 131.4.1 Service standards and provision 131.4.2 Procurement of services 13

1.5 Allocation and apportionment 141.5.1 Schedules 141.5.2 Flexibility 151.5.3 Void and unlet premises 151.5.4 The apportionment matrix 151.5.5 Rateable value apportionments 151.5.6 Owner’s cost/profit centres 151.5.7 Tenant alterations 15

1.6 Direct recoveries 161.6.1 Insurance 161.6.2 Utilities 16

2 Communication and consultation 182.1 Communication 182.2 Consultation 182.3 Budgeting and cost review 18

iv | SERVICE CHARGES IN COMMERCIAL PROPERTY

3 Dealing with new and existing leases 203.1 Existing leases 203.2 New leases 203.3 Sweeper clauses 203.4 PACT 21

4 Financial controls and competencies 224.1 Accounting principles 224.2 Audit and certification of service charges 22

4.2.1 Landlord’s surveyors certificate 224.2.2 Service charge certification 224.2.3 Auditing of the service charge accounts 224.2.4 Independent accountant’ report 234.2.5 Auditing of the service charge accounts 24

4.3 Standard industry cost classifications 244.4 Budgets and actual expenditure accounting 254.5 Right to challenge 264.6 Change of owner or manager 264.7 On-account payments 264.8 Interest on service charge accounts 264.9 Forward funding of service charge costs 274.10 Timeliness 274.11 Benchmarking and cost analysis 274.12 Value for money 27

5 Dispute resolution 29

5.1 Alternative dispute resolution as industry best practice 295.1.1 Early neutral evaluation 295.1.2 Mediation 305.1.3 Independent expert determination 305.1.4 Arbitration 315.1.5 RICS DRS fact sheets 31

6 Mixed use schemes 32

7 Provision for anticipated future expenditure 33

8 Initial provision, replacement and improvement of fabric, plant and equipment 34

8.1 Initial provision of fabric, plant and equipment 348.2 Like-for-like replacement 348.3 Replacement with enhancement 358.4 Improvement and enhancement 358.5 Refurbishment 358.6 Communication 36

9 Environmental sustainability 37

10 Additional best practice guidance for shopping centres 3810.1 Marketing and promotions 3810.2 Commercialisation (non-core income) 3810.3 Apportionment of service charges in shopping centre – weighted floor area

apportionment39

SERVICE CHARGES IN COMMERCIAL PROPERTY | v

Section 3: Appendices 41

A Best practice compliance checklist 43B Standard Industry Cost Classifications 45C Example reports 50

Section 4: Additional information 63

1 Glossary and terminology 652 Further reading 69

vi | SERVICE CHARGES IN COMMERCIAL PROPERTY

RICS guidance notes

This Code of practice has the status of aguidance note. It provides advice topractitioners. Where procedures arerecommended for specific professional tasks,these are intended to embody ‘best practice’.

Although practitioners are not required to follow theadvice and recommendations contained in thenote. They should note the following points.

When an allegation of professional negligence ismade against a practitioner, the court is likely totake account of the contents of any relevantguidance notes in deciding whether or not thepractitioner had acted with reasonablecompetence.

A practitioner conforming to the practicesrecommended in this note is unlikely to beadjudged negligent on account of having followedthese practices. However, practitioners have theresponsibility of deciding when it is appropriate tofollow the guidance. If it is followed in anappropriate case, the practitioner will not beexonerated merely because the recommendationswere found in a guidance note.

On the other hand, it does not follow that apractitioner will be adjudged negligent if he or shehas not followed the practices recommended in thisnote. It is for each individual practitioner to decideon the appropriate procedure to follow in any

professional task. However, where practitionersdepart from the practice recommended in this note,they should do so only for good reason. In theevent of litigation, the court may require them toexplain why they decided not to adopt therecommended practice.

The Code has been prepared to promote bestpractice in terms of service charges for commercialproperties in new leases or renewed leases.Circumstances can arise where the suggested bestpractice in this Code cannot be applied. This Codetherefore should not compel owners, occupiers ormanagers to an inappropriate course of action.Transparency simply requires that in the event theCode is inappropriate the reasons for this areshared with all relevant parties and a record kept.

In addition, guidance notes are relevant toprofessional competence in that each practitionershould be up to date and should have informedhim or herself of guidance notes within areasonable time of their coming into effect. In theopinion of the approving professional bodies, thisguidance note represents best practice.

Effective Date

The Service Charges in Commercial Property Codeof Practice and supporting guidance are effectivefrom 1 October 2011.

SERVICE CHARGES IN COMMERCIAL PROPERTY | 1

Introduction

The service charge arrangement

Service charges enable an owner to recover thecosts of servicing and operating a property fromthe occupiers and others that benefit from and usethe services and facilities provided.

The service charge arrangement is set down in thelease(s) and the aim is to entitle the owner torecover his charges and associated administrativecosts incurred in the operational management ofthe property. This will include reasonable costs ofmaintenance, repair and replacement (usually wherebeyond economic repair) of the fabric, plant,equipment and materials necessary for theproperty’s operation plus any other works andservices which the parties agree are to be providedby the owner and subject to reimbursement by theoccupier.

If the property is fully let, the owner will normally beable to recover all expenditure on services throughthe service charge, except any concessionarydiscounts the owner has given.

Usually there will be a manager who administersthese services (for which he/she will receive a fee).

Service charge costs will not include:

+ Any initial costs (including the cost of leasing ofequipment) incurred in relation to the originaldesign and construction of the fabric, plant orequipment.

+ Any setting up costs, including costs of fittingout and equipping the on-site managementoffices that are reasonably to be consideredpart of the original development cost of theproperty.

+ Improvement costs above the costs of normalmaintenance, repair or replacement. Servicecharge costs may include enhancement of thefabric, plant or equipment where suchexpenditure can be justified following the

analysis of reasonable options and alternativesand having regard to a cost benefit analysisover the term of the occupiers’ leases.Managers should provide the facts and figuresto support and vindicate such a decision.

+ Future redevelopment costs.

+ Such costs which are matters between theowner and an individual occupier, for instance:enforcement of covenants and collection ofrents; costs of letting units; consents forassignments; sub-letting; alterations; rentreviews; additional opening hours, etc.

+ Any costs arising out of the failure/negligenceof the manager or owner.

New service charge lease provisions

The City of London Law Society and Practical LawCompany have both drawn up service charge leaseprovisions which have been specifically designed tocomply with the principles and provisions of thisCode. These are available as downloads from thefollowing links:

www.citysolicitors.org.uk/FileServer.aspx?oID=976&IID=0 (suggested service charge provisions foran office building)www.citysolicitors.org.uk/FileServer.aspx?oID=975&IID=0 (suggested service charge provisions fora shopping centre)http://property.practicallaw.com/6-505-4928

Use of this Code of practice

Section 1 of this document outlines the aims andobjectives of this Code, along with stating its coreprinciples. Section 2 then gives recommendationsand guidance on how the Code can be followed.Sections 3 and 4 contain additional information andresources to support your understanding of theCode and assist you with the implementation.

2 | SERVICE CHARGES IN COMMERCIAL PROPERTY

Section 1:The Code



Service Charge Code (‘The Code’)

Aims and objectives

+ To improve general standards and promote bestpractice, uniformity, fairness and transparencyin the management and administration ofservices charges in commercial property.

+ To ensure timely issue of budgets and year endcertificates.

+ To reduce the causes of disputes and to giveguidance to resolving disputes where these dooccur.

+ To provide guidance to solicitors, their clients(be they owners or occupiers) and managers ofservice charges in the negotiation, drafting,interpretation and operation of leases inaccordance with best practice.

The core principles

“Tenants who agree to service charge clausesunder which they contract to pay against asurveyor’s estimate or an accountant’s certificaterely upon the professional people involvedperforming their roles with professionalscrupulousness, diligence, integrity andindependence and not in a partisan spirit,supposing their only task to be to recover asmuch money as they can for the landlord.”— Jonathan Gaunt QC sitting as a Deputy HighCourt Judge: Princes House Ltd v DistinctiveClubs Ltd [2006]

The service costs

1 Best practice requires services to be procuredon an appropriate value for money basis andthat competitive quotations are obtained or thatcost are benchmarked.

2 Owners should not profit from the provision orsupply of services. Save for charging areasonable commercial management fee toreflect the actual costs of managing theservices the amount recoverable by an owner islimited only to the proper and actual costincurred in the provision or supply of services.

3 All costs are to be transparent so that allparties, owners, occupiers and managers, are

aware of how the costs are made up.Management fees are to be on a fixed pricebasis with no hidden mark ups.

Allocation and apportionments

4 Costs should be allocated to the relevantexpenditure category. Where reasonable andappropriate, costs should be allocated toseparate schedules and the costs apportionedto those who benefit from those services.

5 The basis and method of apportionment shouldbe demonstrably fair and reasonable to ensurethat individual occupiers bear an appropriateproportion of the total service chargeexpenditure that reflects the availability, benefitand use of services.

6 Managers are to make a full apportionmentmatrix available to all occupiers, which clearlyshows the basis of calculation and the totalapportionment per schedule for each unit withinthe property/complex.

Certification

7 Certified accounts of expenditure are torepresent a true and accurate record ofexpenditure incurred. Those certifying servicecharge accounts must recognise that they havea duty of care to both owners and occupiers toact with professional care, diligence integrityand objectivity.

Communication and consultation

8 Whilst the owner has the right to set thestandard to which his investment will bemanaged and has a duty to manage, managerswill consult with occupiers with regard to thestandard and quality of service charge provisionrequired.

9 Managers will communicate with occupiers toensure services are delivered effectively for thebenefit of all and to ensure that occupiersunderstand what they can expect to receiveand how much they are required to pay.

10 Managers claiming compliance with theprinciples of this Code will be transparent indemonstrating how they comply. An example isto use the checklist at appendix A.


Duty of care

11 The owner and/or manager has a duty tomanage the property and also has a duty ofcare to occupiers, (who entrust the spending oftheir own business overhead and cash flow byfunding the services) and to the owners, (whoseinvestment they are servicing).

12 There will be clear policies as to how theservice charge will be managed.

Financial competence

13 In incurring costs in the provision of servicesthe manager is spending the occupiers’ money.Managers must demonstrate a high degree ofcompetence, professionalism, integrity,diligence, objectivity and transparency indealing with the service charge accounts.

14 When issuing statements of accounts and/orcertifying expenditure managers must do so ina non-partisan spirit, acting as experts. Themanager must therefore ensure that all costshave been incurred and are properlyrecoverable in accordance with the leases.

15 Service charge monies will be held in one ormore discrete bank accounts, recognising thatmonies are held to deliver the serviceexpenditure.

16 All interest earned, or where separate accountsper property are not operated a proper andreasonable amount of interest calculated onnormal commercial rates, will be credited to theservice charge account after appropriatedeductions have been made, i.e. bank charges,tax, etc.

17 The recommended Industry Standard CostHeadings must be used in reporting budget andactual expenditure.

Occupier responsibilities

18 Occupiers will ensure prompt payment of allservice charge on-account and balancingcharges. Where a legitimate dispute exists, anypayment properly withheld should reflect onlythe actual sums in dispute.

19 Occupiers will recognise that the service chargeprovision of any lease has legal effect and willensure that representatives involved indiscussions, meetings etc. have an appropriatelevel of responsibility and authority to makedecisions concerning service charge matters.

20 In recognition that value for money andmaintenance of quality standards will beenhanced through partnership, occupiers will beproactive in assisting owners in the operationand utilisation of service and service systems,e.g. separating waste to facilitate appropriateand cost effective recycling, adopting energysaving measures, etc.

Right to challenge/dispute resolution

21 All new leases (including renewals) should makeprovision for either party to require theresolution of disagreements through the use ofalternative dispute resolution (ADR) as a costeffective alternative to court action.

22 If the parties cannot agree a mediator orindependent expert to determine the disputethe president of the RICS should (on request)nominate a suitable person. Where leases donot allow for ADR parties are reminded thatthere is nothing to stop them agreeing to go toADR to resolve a dispute.

Timeliness

23 Communication and consultation betweenmanagers and occupiers need to be timely andregular to encourage and promote goodworking relationships and understanding withregard to the provision, relevance, cost andquality of services.

24 Managers will issue budgets to occupiers,including an explanatory commentary at leastone month prior to the start of the servicecharge year. Detailed statements of actualexpenditure, together with accounting policiesand explanatory text, will be issued within fourmonths of the service charge year end.

Transparency

25 Transparency is essential to achieving goodcommunication. By being transparent in theaccounts, the explanatory notes, policies andday to day management the manager willprevent disputes. Prompt notification of materialvariances to plans or forecasts ensures betterrelationships between owner, manager andoccupier.

Value for money

26 Service quality is to be appropriate to thelocation, use and character of the property. Themanager is to procure quality service standards


to ensure that value for money is achieved at alltimes. The aim is to achieve value for moneyand effective service rather than lowest price.

Limitations of the Code

Existing lease terms

This Code cannot override the lease but, if read inconjunction with it, will enable users to identify thebest way forward in interpreting that lease toensure effective management of services.

As business practice constantly evolves, so it iswith service charges. Negotiating a new lease orthe renewal of an existing lease provides an idealopportunity to ensure modern and flexible bestpractice service charge clauses are incorporatedwithin the lease contract to facilitate effectivemanagement of the property and the relationshipbetween the parties.

An ADR clause will enable difficulties during theterm of the lease to be resolved efficiently.

The parties should carefully consider theprinciples and requirements of this Code priorto entering into a new or renewal lease.

Proportionality

The extent to which owners and managers shouldseek to comply with the recommended bestpractice processes and procedures set down in thisCode will often be dependant upon a variety ofissues such as the size, nature and type ofproperty, the aggregate of the total service chargecosts and the amounts payable by individualoccupiers and should be consistent with best valueprinciples.

Nevertheless, owners, managers and occupiersshould at all times seek to comply with the coreprinciples set down in this Code.



Section 2:Recommended best practice to support thecore principles



1 Administration

1.1 Standard and quality of serviceprovision

The aim of service provision is to ensure servicesare beneficial and relevant to the needs of theproperty, its owner, its occupiers and theircustomers.

Managers and occupiers should consider thenature, type and complexity of each property as thelevels and standards of service provided will differaccording to these factors. In providing theseservices the aim is to achieve value for money andeffective service rather than lowest price.

The manager is responsible for ensuring that thestandards of services provided are monitored, thatthe quality and cost of the services provided areregularly reviewed and, where possible,demonstrate that service standards are beingdelivered and value for money is being obtained.

Management policies and procedures are to beestablished that define the procurement,administration and management of services, and toensure the respective obligations of owner andoccupier are discharged and services are providedefficiently, economically, cost effectively and safely.

Where there are sound reasons for implementingalternative procedures to the ones set out in theCode the manager should be able to explain andjustify these in advance.

Effective communication is key to achieving bestpractice; the aim being to provide transparencybetween manager and occupier in the way servicesare provided and managed and how the costs ofthese services are recovered.

On occasion there will be additional servicesprovided outside the service charge. Occupiers areentitled to expect similar transparency,accountability, etc. in these services. The Codeapplies to these as well.

1.2 Staffing and personnel

On-site management staff should have a soundknowledge of appropriate modern business

practices and be adequately skilled to provide bestand agreed performance standards. They will needappropriate skills in general management,employment and health and safety matters andnecessary training costs may be covered by theservice charge.

To ensure the services are provided efficiently andcost effectively sufficient staffing of the right typeand calibre are to be provided. The total costs forstaff should be declared.

Site management teams and managers should berequired to perform according to definedperformance standards. It is advisable to measureand review performance regularly against theseperformance standards.

Where reviews of staffing levels are undertaken it isreasonable that costs associated with achievingbeneficial change, such as termination ofemployment contracts, will be recovered under theservice charge provided such costs can be justifiedfollowing the analysis of reasonable options and thepurpose is to achieve greater value for money andcost effectiveness.

1.3 Management charges

1.3.1 Total cost of management

The management charge is the reasonable price forthe total cost of managing the provision of theservices at the location, and relates only to workcarried out in managing and operating the servicesand administering the service charge.

The management charge might comprise twoelements:

+ the fee charged by the manager for themanagement and supervision of the services toa site (the management fee)

+ the cost of site specific management staff,whether based on-site full time or part time (thesite management costs).

No two buildings are identical in the way they needto be run to meet the requirements of all partieswith an interest in the property. Management fees


and the site management costs will need to be setat the appropriate level with this in mind and themanagement structure in place should meet therequirements of the building and of this Code.

It is not for this Code to prescribe the operatingbusiness model of the manager. However, bestpractice requires transparency and a managementstructure where costs are clearly identified andexplained within the explanatory notes included inthe budget and actual expenditure reports tooccupiers.

1.3.2 Management fees

The management fees charged should be areasonable costs and overheads in relation to theoperation and management of the services. Thisshould reflect the work necessary to fulfil theprinciples of this Code. It is recognised thatwhoever is providing the service is entitled to covertheir costs and overheads including a reasonableprofit element.

The manager should ensure that the managementfee relates only to the work carried out in managingthe service charge. Other costs, i.e. assetmanagement and rent collection should beexcluded from the service charge management fee.The service charge report should state this fact.

The Code requires that fees are set on a fixed pricebasis rather than being calculated as a percentageof expenditure. Percentage is no longer appropriateand is considered to be a disincentive to thedelivery of value for money. The management feeshould be a fixed fee subject to annual review orindexation.

It is recognised that many leases refer to themanagement fee as a percentage of the totalservice charge or contain a percentage cap. Thisguide cannot override the terms agreed betweenthe parties and recorded in the lease. However,where the lease limits the amount or quantum ofthe fee recoverable from occupiers it is a matterbetween the owner and occupier and should notprevent or limit the manager’s ability to charge acommercial fee which reflects the requirements ofthis Code. In certain circumstances this may resultin a shortfall in the recovery of service charge costson behalf of the owner but the overriding principlemust be to achieve best practice principles for themanagement and administration of servicescharges in commercial property.

Managers should confirm in the service chargereport: the basis of their appointment; when theywere appointed; and the basis of the managementfee payable, which is recoverable under the servicecharge. Where the owner manages the propertyin-house they should be able to support the basisof their fees when benchmarked against othercomparable service providers.

It is advisable for the costs of reports undertakenby specialists working for the same organisation asthe manager (i.e. fire risk assessment, DDA reports,health and safety reports) to be excluded from themanagement fee; and for any fees for theseadditional services to be stated clearly andrepresent value for money. If other costs ofproviding the management service are beingincluded as separate items, the management feeshould reflect this separate ‘accounting’ as part ofthe management service.

Further detailed information and guidance isavailable in an RICS information paper: Limitingliability in property management contracts.

1.3.3 Duties of the manager

Items 11 and 12 of the core principles outline dutyof care responsibilities relating to service charges.The owner has the duty to manage or delegatemanagement of the property and the responsibilityto administer and account for the tax properly dueon the service charge that ownership brings. Bestpractice requires the manager to recognise a dutyof care to occupiers, who fund the services beingprovided, and the owners whose investment theyare servicing.

The manager will usually perform additional rolesand duties relating to investment interests, i.e.asset management and rent collection. In suchcases the fees charged by the manager in relationto the performance of such additional duties is tobe excluded from the service charge managementfee.

1.3.4 Site management costs

Site management costs will be the full employmentcosts for sufficient staff, as described in 1.2. Thejob titles of the staff will vary. The total cost of thestaff will include wages, national insurance (NI), tax,compliance with statutory requirements, trainingand other appropriate benefits.


Site management costs might also include:

+ the costs of providing appropriate officeaccommodation and administrative supportwhere necessary; and/or

+ a fee representing the HR and payroll costsassociated with dealing with staff (often referredto as an administration charge);

+ separate specialist consultancy fees payable,for instance, in connection with the carrying outof health and safety risk assessments, asbestossurveys, etc. and which should be clearlyidentified in the service charge accounts.

One way of ensuring that the costs reflect value formoney is to compare them to a third partyproviding similar services. Where such fees areincluded the basis of calculation and/or quantum ofthe fees included should be clearly communicatedto occupiers to aid transparency.

Where on-site staff oversee more than oneproperty, their costs (and any appropriateaccommodation and administrative support costs)should be adjusted accordingly so that eachproperty picks up a fair share of their cost. Theservice charge report should identify if this is thecase and how costs are split.

Many buildings require management 24 hours aday, 7 days a week. A manager may considersupporting the function of the on-site staff byproviding a customer support/help desk to dealwith property matters outside of usual businesshours or when the manager cannot be contacted.Where this is provided as an alternative toemploying additional on-site staff, the reasonablecost of running this service may be recovered fromthe service charge.

1.3.5 Notional rent for managementaccommodation

Many leases contain provisions for the inclusion ofa notional rent within the service charge formanagement accommodation or other premisesused in connection with the management of theproperty. Notional rents were originally included toprovide developers with a return on otherwiseunlettable space and to cover the initial provisioncosts for management accommodation.

In many cases, management accommodationcannot be separately let and thus has no market

value, other than as a location for such anoperation. However, there are situations where themanagement premises comprise accommodation(e.g. offices) that would otherwise be lettablespace; in these cases, there is an element of rentforegone to provide accommodation for the on-sitemanagement team.

It is generally not advisable to charge occupiersnotional rent in situations either where the premisesare incapable of beneficial occupation for any otherpurpose, or where provision has not been made forfacilities management accommodation; forexample, a modern building designed withoutincluding facilities management accommodation aspart of the original design specification.

There is also an argument that the receipt of anotional rent acts as a disincentive to the efficientuse of space and the consideration of alternativeuses for areas occupied for centre or facilitiesmanagement.

1.4 Contract procurement

1.4.1 Service standards and provision

It is advisable to ensure that all contractors andsuppliers perform according to written performancestandards. It can prove valuable to regularlymeasure and review performance against thesedefined performance standards; as well as regularlyreviewing the appropriateness of the standardsused.

1.4.2 Procurement of services

It is the responsibility of the manager to identify theprocurement strategy suitable for the propertybased on appropriate level of service and value formoney. The manager may use a procurementspecialist to deliver best value solutions so long asthe purpose is to achieve greater value for moneyand cost effectiveness.

The cost of any procurement specialists employedis considered to be a cost that is recoverablethrough the service charge but the costs should beclearly identified in the charge report, along withdetails of whether it is a one-off fee or spread overthe length of the contract. The fee payable shouldreflect the work undertaken and may beperformance related.


It is the responsibility of the manager, orprocurement specialist, to develop procurementsystems; vet and select the most appropriatecontractors based on track record, skill andmanagement; and prepare a contract andspecification (including Transfer of Undertakings(Protection Employment) (TUPE) information whereappropriate). Contract costs should be transparentand in accordance with the provisions fortransparent accounting.

Further information can be obtained from the RICSinformation paper: TUPE: information for propertymanagers.

The manager or procurement specialist should beresponsible for the provision of full pre-qualificationassessments of suppliers and contractors in termsof their financial standing; proven compliance withhealth and safety; appropriate indemnity in respectof the services provided, including an undertakingthrough sub-contractors (with provisions for priorapproval thereof) and proven environmental/sustainability credentials.

Managers should ensure that there is transparencyin procurement fees and charges for verifyingcontractor financial standing, health and safetyrecords and environmental credentials, etc.,including cost or fees charged to owners.

If any fees are received from contractors managersshould clearly state what these are. Managersshould also be aware that the practice ofrequesting fees from contractors for inclusion inapproved contractor lists, contract tendering, etc. iscontrary to best practice and is considered to bewholly inappropriate under any circumstances.

Upon receipt of tenders, a tender report should beprepared containing recommendations on whichcontractor is most suitable. Copies of all tenderdocuments should be made available forinspection, if requested. Should copies be requiredthe manager will be entitled to charge for the time,cost of copying and postage of such documents.

Owners and/or managers are often able to achievesubstantial savings and other benefits in theprovision of services through bulk purchasing orthrough the placing of group contracts. However,the pricing of services under such contracts candiffer in either providing a single contract sum, aseparate cost per property or a schedule of ratesfor different services.

Where such bulk or group contracts exist occupiersare not entitled to have access to documentsrelating to properties other than the one theyoccupy, although where the contract/tenderincludes other properties there should betransparency in terms of the apportionment andallocation of costs to the subject property.

Where contracts are reviewed it is reasonable thatcosts associated with achieving beneficial change,such as termination of contracts, are recoveredunder the service charge where such costs can bejustified following the analysis of reasonableoptions and the purpose is to achieve greater valuefor money and cost effectiveness.

1.5 Allocation and apportionment

1.5.1 Schedules

Costs should be apportioned to each occupier inaccordance with items 4 and 5 of the coreprinciples.

The basis and method of allocating andapportioning the service charge expenditure is tobe transparent and clearly communicated to all.Any inducements or concessions to attractoccupiers to a property are to be borne by theowner and not spread among other occupiers. Therationale for the apportionment between occupiersshould be set down in writing and re-examinedperiodically to see whether there is a need for anew apportionment matrix or apportionmentmethod to be applied.

Where reasonable and appropriate, costs should beallocated to separate schedules and the costsapportioned to those who benefit from thoseservices.

In many cases, particularly buildings with a varietyof different users, not all the occupiers will benefitfrom the services to the same extent. In suchcircumstances it may be necessary to divide theservice charges into separate parts (schedules) toreflect the availability, benefit and use of serviceswith each part being individually apportionedbetween occupiers according to the core principles.The allocation of costs to separate schedules isessential in achieving a fair and properapportionment of costs between those occupiersthat benefit from specific services. Occupiers will


therefore often pay different percentageapportionments under different schedules.

1.5.2 Flexibility

It is worth considering that the availability, benefitand use of the services within a building, and thedemand for those services by individual users,could vary over time; and therefore leases wouldbenefit from being drafted to include flexibility andvariation. For example, additional units may becreated or the use of a property may changecausing different demands for services, and thuschanging the costs/payments structure. Even withthe grant of shorter-term leases the ability tochange allocation and apportionment methods,where necessary and appropriate, should beavailable during the term to ensure service chargesare spread fairly and reasonably between all thebeneficiaries and users.

1.5.3 Void and unlet premises

Occupiers are not to be liable for the costsattributed to unlet premises; the owner is to meetthe cost of these, as well as any special orpersonal concessions given to individual occupiers.Owners are also responsible for bearing a fairproportion of costs attributable to their use of theproperty, e.g. where an on-site managementpremises are also used for other purposesunconnected with the day-to-day management ofthe building and services.

1.5.4 The apportionment matrix

Managers are to make a full apportionment matrixavailable to all occupiers, which clearly shows thebasis and method of calculation and the totalapportionment per schedule for each unit within theproperty/complex.

For the avoidance of doubt and to preserveconfidentiality this should exclude details of anyindividual concessions or other arrangementsbetween individual owners and occupiers, whichare costs that are to be borne by the owner. Anindividual occupier should be able to clearly verifythe basis and method of calculation used in arrivingat his or her particular percentage apportionment.

1.5.5 Floor area apportionment

Apportionment based on floor area is the mostcommon and often the simplest method of

apportionment. The standard floor areaapportionment is the ratio the premises bear to thetotal lettable parts of the building.

RICS Code of measuring practice sets outdefinitions of the measurement of buildings andtheir recommended applications, e.g. GrossExternal Area (GEA), Gross Internal Area (GIA) NetInternal Area (NIA) etc.

Where the service charge is apportioned based onfloor area, managers should ensure that the methodof measurement used is consistent. Do not mixdifferent measuring methods in the same schedule.

1.5.6 Rateable value apportionments

Rateable values are no longer recommended as anappropriate method for calculating service chargeapportionments.

Rateable values take account of a variety of factorsrelating to value, such as location, etc. and do notgenerally reflect a reasonable assessment of thebenefit and use of common services.

While many leases require service charges to beapportioned based on rateable value with noprovision for any alternative basis to be used, andnotwithstanding that this Code cannot override thecontractual terms of any lease, it is neverthelessthe view of the steering group that rateable valueapportionments should be changed to such otherrecognised methods of apportionment consistentwith the aims and aspirations as set down on thisCode.

1.5.7 Owner’s cost/profit centres

Where there is a separate cost or profit centrewithin a property complex that generates incomefor the owner, which is not credited to the servicecharge account, the costs associated withmaintaining and running that cost centre will not beallocated to the service charge account (e.g. carparks, mobile phone masts, advertising, radioaerials, etc.). If the separate cost/profit centrederives benefit from staff or services that form partof the service charge then the cost/profit centre willbe incorporated into the service charge matrix (e.g.car park, management office, etc.). Alternatively,owners can estimate and declare a contribution tothe service charge to reflect the benefit and use ofthe common services enjoyed.


1.5.8 Tenant alterations

Alterations carried out by tenants may have animpact upon or affect the calculation of theapportionment of occupier service charge liabilities.When dealing with alteration to premises,particularly where these require the prior consent orapproval of the owners, careful considerationshould always be given to the potential impactupon the calculation of the service charge toensure that the apportionment continues to be fairand reasonable.

Further information and guidance can be obtainedfrom RICS information paper: Apportionment ofservice charges and tenant alterations.

1.6 Direct recoveries

Service charges usually include the cost of utilitiesfor any common parts and services. Traditionallybuildings and/or rent insurance is apportioned tooccupiers outside of the service chargearrangement as a directly recoverable cost, withoccupiers often being responsible for payment ofelectricity/gas consumption supplied to theoccupied premises direct to the utilities provider. Insome circumstances, however, the lease mayprovide for the cost of buildings insurance anddemised electricity to be recovered within theservice charge.

Where owners are seeking to recover the cost ofinsurance and utilities outside of the service chargearrangement, occupiers are entitled to expectsimilar transparency, accountability, etc. in theseservices. The Code applies to these as well.

1.6.1 Insurance

Value for money

Where owners are responsible for insuring theproperty the insurance policy terms should be fairand reasonable and represent value for money, andbe placed with reputable insurers.

Commission

The principle of commission retention is now longestablished. In its base form the use of commissionto cover administrative costs including broker feesshould be recognised and also the owner’s abilityto benefit from the economies of scale generatedby the pooling of risks into a common programme.

Owners and managers must always disclose anycommission they are receiving.

Service

Owners should provide full insurance details onrequest. Owners should also explain the process bywhich occupiers can make claims under the policy.

Policies should include the ability to note theinterest of occupiers and include subrogationwaiver and non-invalidation provisions to thebenefit of the occupier, again in line with leaseobligations.

Further information and guidance can be obtainedfrom the RICS guidance note: Insurance forcommercial property managers.

1.6.2 Utilities

Where a service is provided direct to an occupier orthe occupied premises, such as mains water orelectricity supply, as distinct common works andservices, it is important that the manager andoccupier understand the basis on which the serviceis provided and whether the costs are intended tobe included within the service charge account or asa separate charge.

Separate metering or full sub-metering of utilitysupplies is considered essential to ensure anapportionment of cost between occupiers thatreflects actual consumption and usage.

Costs should be recovered in accordance with theterms of the leases, which ought to allowadditionally for the payment of a reasonableadministrative charge. The recovery should stateunit costs and admin charges and include copies ofthe original invoice in order to comply with therequirements for transparency set out in this Code.

To avoid ambiguity and to ensure accurateconsumption and billing is recorded for occupiers itis recommended best practice that the cost ofreading meters (where carried out by a third party)is included as an acceptable cost under the servicecharge. Otherwise, such cost would usuallycomprise part of the on-site management costs.

Occupiers should be aware of the ever-increasingpressure placed on owners by utility providers forprompt payment and should therefore ensure thatall invoices are paid promptly. In certaincircumstances payments in advance may beappropriate.


It is now becoming increasingly common for utilitycompanies to request that owners either pay largesecurity deposits or higher energy rates.

Where a lease makes specific provision forinclusion of a security deposit as a service chargecost, both owners and occupiers should ensurethat the lease allows for the occupier’s proportionof such deposit to be reimbursed upon expiry orsooner determination of the lease, in the event of achange of owner/manager, or if the deposit isotherwise reimbursed by the utility company.

Where a lease makes no such provision, it isconsidered appropriate for the owners to open adialogue with occupiers to seek to agree to pay asecurity deposit in return for contract supply rates,as opposed to default supply rates.

The payment of a deposit can be included in on-account payments for the relevant service chargeperiod, credited at the year end and then re-budgeted for the following period. Therefore, if alease expires in any given period the occupier willreceive an appropriate credit in their final servicecharge balance.


2 Communication and Consultation

2.1 Communication

Poor communication often gives rise to disputes.

Effective communication is key to achieving bestpractice – the aim being to provide transparencybetween manager and occupier in the way servicesare provided and managed and how the costs ofthese services are recovered. Communicationneeds to be timely and continuous and works bestwhen managers and occupiers deal with eachother’s reasonable enquiries and reciprocalobligations promptly and efficiently.

Managers should seek feedback from occupiers onthe performance management standards andservice delivery and action this as appropriate.

It is important to have a clear communicationstructure. Best practice requires managers to holdregular meetings with occupiers; and occupiershave a duty of care to participate and to beproactive in informing managers of the keycontacts who deal with service charges.

Managers are also to make key contactsinformation available to occupiers, i.e. managementsurveyor, credit controller, accounts clerk, etc., andthe names of on-site staff along with their roles andresponsibilities.

Managers are to provide occupiers with a copy ofthe management policy, which should containstandard information about how the property ismanaged and the aims of the management team(manager and site team). Managers should alsoinform occupiers of any future plans for theproperty, if these have an impact on the servicecharge.

2.2 Consultation

Managers of residential premises are required tofollow statutory consultation procedures and will bekeenly aware that if the proper procedure is notfollowed the amount that they can recover might belimited.

Managers of commercial property are not generallyobliged to ‘consult’ with occupiers prior to incurring

costs that are ultimately to be recovered under theservice charge arrangement. However, somecommercial leases might set out certain proceduresto be followed, perhaps prior to incurring largeextraordinary costs such a major fabric or plantreplacements, etc. The courts have recently ruled ina number of instances that owners must strictlyfollow the terms of leases when recovering servicecharges. In order to ensure recovery of the servicecharge managers should pay particular care tofollow the procedures set down within the lease.

Even where the lease is silent it is considered bestpractice that managers consult with occupiers withregard to the standard and quality of service chargeprovision required. While the manager has a duty tomanage the property and will not wish to avoidexpenditure which might have a detrimental effecton the owner’s investment, managers shouldensure that the standard of service provision (andtherefore the cost to occupiers) does notunnecessarily exceed the reasonable requirementsand needs of the occupiers.

2.3 Budgeting and cost review

It is the manager’s duty to keep expenditure underconstant review in order to identify any unforeseenvariances and to notify occupiers accordingly.

When significant variances in actual costs againstbudget are likely, it is good practice for themanager to notify occupiers promptly and withinthe current service charge year. When substantialworks are planned, summary details of the resultsof tenders and the process used should becommunicated to the occupiers together with fullinformation on the programme of works, costs andthe process to be adopted for keeping occupiersinformed.

Occupiers are entrusting their business overheads/operating costs to an external manager and areentitled to be notified of any significant or materialvariances to the forecast as soon as possible.

Whether a variance against forecast is to beregarded as significant or material will often be asubjective assessment, dependent upon a variety


of issues such as the size, nature and type ofproperty and the amounts payable by individualoccupiers. Prompt notification of unforeseenvariances in the total annual spend should be madeto all occupiers with an explanation as to how thisis being mitigated at the earliest opportunity.


3 Dealing with new and existing leases

3.1 Existing leases

The basis by which service charges are operatedand managed is set down in the contract betweenthe owner and occupier; the lease.

Many service charge disputes are caused by thefailure of managers and/or occupiers to read andproperly understand the respective obligations andliabilities under the contractual arrangement madebetween them. Therefore, care and attention isrequired to properly understand the contractualbasis of the service charge arrangements.

Existing leases may contain service chargeprovisions which differ from the recommendationsin this Code of practice. Where this is the case, thisCode cannot override the lease but existing servicecharge clauses are to be interpreted as far aspossible in line with the principles and practices asset out here, unless the lease specifically stipulatesa different approach, which therefore has legalforce.

Where doubt or possible ambiguity exists, it isrecommended that specialist professional advice issought.

3.2 New leases

As new leases are granted and older leasesrenewed, it is essential to bring service chargeclauses up to modern standards. If modernisationof the service charge provision of the lease isrequired, both to meet best practice and in theinterests of compatibility with other occupiers, andresults in an increase or decrease in the amountpayable by the occupier, this should be taken intoaccount in negotiations and, for instance, reflectedin the rent payable.

This Code cannot override the lease but it does setout industry accepted best practice in the field ofservice charges. It will help solicitors, their clients(be they owners or occupiers) and the managers ofservice charges, draft, interpret and operate leasesin accordance with best practice.

It is recommended that owners, occupiers and theirsolicitors ensure the lease they sign reflects this

Code, which will enable more effective, businessfocused service charge management during thecourse of the lease. Terms should be relevant andappropriate recognising the length of lease termand the scale and type of property concerned. Atlease renewal the service charge clauses willcertainly require review and probablymodernisation/updating. It is recommended thatnew leases be drafted with sufficient flexibility toallow for changes in best practice.

The attention of owners, managers and occupiersis also drawn to the Code for Leasing BusinessPremises, which provides further guidance, fornegotiations before the grant of a lease or leaserenewal, in creating a document which is clear,concise and authoritative.

Further information can be obtained fromwww.leasingbusinesspremises.co.uk.

It is unlikely that all leases within a multi-letproperty will fall for renewal on the same date.Modernising the service charges on an ad hocbasis may lead to a ‘dual’ service charge, where ineffect two service charge arrangements wouldoperate in tandem; one based on the older form ofleases and the other based on the modern form.Interim arrangements may therefore be necessaryto ensure the practical operation of the servicesand the recoverability of the service costs duringthe intervening period until such time as all leaseshave been modernised. For example, renewalleases might reflect the ideal service charge regimegoing forward as well as the status quo so thatwhen the tipping point is reached the owner canswop from the old lease service charge regime tothe new.

3.3 Sweeper clauses

It is often difficult to predict precisely what servicesmight be provided through the duration of a longlease and which should be covered by the servicecharge. To avoid the risk of incurring costs thatmight fall outside of the service charge, mostleases contain a ‘sweeper’ provision entitling theowner to charge not only for the services


specifically listed, but also for other miscellaneousservices that might be provided in the future.

This is not usually a problem for short leases;however, as it is far easier to accurately predict theservices which are to be provided. In these cases,unless a lease incorporates very clear wording tothe contrary, if the owner had in mind the provisionof a service, but he has not covered the right toinclude the cost of providing it in the servicecharge, he will not generally be able to use thesweeper clause as authority to recover the cost.

A sweeper clause cannot be used to cover the costof something that was left out of the lease in error.The intention is to give the owner the ability toprovide further services that are not identified or incontemplation at the time the lease was grantedand which for any reason are considered necessaryor desirable to be provided at a later time.

3.4 PACT

The Civil Procedures Rules (CPR) determines thatADR must be considered before litigation or theparties risk a punishment of costs by the courts.

Professional Arbitration on Court Terms (PACT) is ascheme offered by RICS and the Law Society as aform of alternative dispute resolution (ADR) forlease renewal disputes.

The scheme provides the opportunity for ownersand occupiers to have the terms and rent payableunder their new lease decided by a surveyor orsolicitor acting as either an arbitrator orindependent expert. It is important to note that anydecision made by either an arbitrator orindependent expert is legally binding.

The objective of the scheme is to increase theeffectiveness and flexibility of the legal system andto give a greater choice to both owners, occupiersand to their advisers through the lease renewalprocess.


4 Financial controls and competencies

4.1 Accounting principles

Service charge statements should include acomprehensive list of accounting policies andprinciples upon which the statement is prepared,including:

+ whether the statements are prepared on anaccruals or cash basis

+ whether the owner has waived the exemptionto charge VAT (opted to tax)

+ a description of the intended purpose for anysinking fund or reserve fund, together with anexplanation of the tax treatment of contributionsto and interest earned on such funds, anddetails of the trust where such monies are held

+ a statement of all contributions to andexpenditure from the sinking fund or reservefund account together with the accountopening and closing balances and the amountof interest earned and tax paid in the relevantperiod

+ an analysis of any material variances betweenbudget and actual expenditure with a detailedcommentary to explain trends and varianceswhere these are significant; and

+ sign off statements by the accountants and/ormanager with regards to compliance, financialaccuracy and the use of appropriate accountingpolicies.

4.2 Audit and certification of servicecharges

4.2.1 The requirements of the lease

It is usual for leases to provide for an annualstatement to be issued to occupiers following theend of each service charge period giving asummary of the costs and expenditure incurred inthe provision of the services and of the calculationof the service charge.

Many leases will set out the procedures regardingpreparation of the annual statement and will oftenrequire that the annual statement is to be ‘certified’by the landlord’s surveyor, managing agent and

sometimes the landlord’s accountant. However,certain leases might also require the statement tobe ‘audited’.

It is essential that contractual requirements in thelease are followed. Compliance with therequirements and procedures set down in the leasemay be a ‘condition precedent’ and recent caselaw has determined that where a lease sets downspecific requirements and procedures, failure tocomply may adversely prejudice the owner’s abilityto recover such sums.

Managers should ensure that service chargestatements are issued strictly in accordancewith the procedures and requirements as setdown under the terms of the lease.

There is currently widespread confusion, however,as to the intention and purpose of the certificationprocess and the requirement for ‘auditing’ ofservice charges. Furthermore, the terminology usedin relation to the issuing of annual statements ofaccount, particularly in older leases, may be quitegeneralised and may not reflect modern auditingand accounting standards and practice.

Independent accountants issuing a report on astatement of service charge expenditure will oftencarry out differing levels of work and will each signa different style of report. Consequently there islittle understanding of the level of assurance thatowners and occupiers can take from the report,and potentially confusion regarding the actual workundertaken by independent accountants.

4.2.2 Service charge certification

The purpose of certification of the service chargeaccounts is to provide occupiers with the comfortand certainty that the accounts produced:

+ represent a true and accurate record of theexpenditure incurred by the owner in supplyingthe services to the building; and

+ that the expenditure the owner is seeking torecover is in accordance with the terms of theleases.


Annual statements of service charge expenditureshould be certified by the manager as complyingwith the statements above. In certifying thestatement the manager is required to act in aprofessional manner and not in a partisan spirit,supposing the only task being to recover as muchmoney as they can for the owner.

Notwithstanding any specific requirements of thelease, the certifier will need to be an appropriatelyqualified competent person with experience indealing with service charges and also needs torecognise that in certifying the service charge theyhave a duty of care to both owners and occupiersto act with professional care, diligence, integrityand objectivity.

The lease might also set down the credentials/qualifications required of the person to certify theservice charge statement. In certain circumstances,the lease might specifically allow the surveyor oraccountant to be an employee of the landlord.

In the interest of transparency the status of theperson issuing the certificate and the capacity inwhich the certificate is issued should be made clear(i.e. landlord’s surveyor, accountant, etc.).

In certain instances certification may be issued inthe name of the manager. Where this is the casemanagers should have clear internal procedures inplace that control who may sign in the name of thefirm and that this should be an appropriately seniorindividual.

Where certification is undertaken by the managerthe cost should be comprised within themanagement fee. Where the lease requirescertification by someone other than the managerthe costs of certification of the service charge,together the fees of an independent accountant willbe recovered through the service charge.

4.2.3 Auditing of the service chargeaccounts+ An audit is an independent external review

process that adds to the credibility of anentity’s disclosures, be it their annual financialstatements, systems of internal control, orcompliance with contractual or legislativeobligations.

+ An audit involves performing procedures toobtain evidence that a specified process is

being followed to give occupiers sufficientcomfort that there is no material misstatementwithin the information subject to the audit, inthis case, the service charge accounts.

Where the lease specifically refers to an ‘audit’ thisis to be carried out in accordance with InternationalAuditing Standards (IASs) (UK and Ireland), andshould be performed by a registered auditor.

In carrying out an audit in accordance withaccepted auditing standards it is the auditor thatwould assess the level of risk involved in theinstruction and adjust the level of work (and cost)accordingly. For instance, the auditor is likely torequire a copy of the lease or leases governing theadministration of the property and summarise theexpenses that may be charged to the occupiers.This exercise is likely to be extremely timeconsuming, and hence costly, particularly for largerproperties with many leases in operation. Theauditor may need to employ an expert in order tocarry out this review on their behalf.

The auditor’s reasonable and proper costs and feeswill, subject to the terms of the lease, be chargedto the service charge account.

Frequently, the work required by a modern auditingframework is not what was anticipated when leaseswere drawn up; especially where the original leasedates back many years. Where this is the situationthe manager faces a dilemma whereby the leaserequires an ‘audit’ but an audit in accordance withauditing standards may exceed that which wasintended. An audit may not, therefore, provide bestvalue for occupiers. In such situations owners/managers may consider it appropriate to engage anindependent accountant to examine the servicecharge accounts of a property, rather than carry outan audit.

If the lease specifies that an audit is to be carriedout then this should be undertaken, unless theoccupiers confirm in writing that it is not required.In these circumstances, an independentaccountants’ report should be prepared.

4.2.4 Independent accountants’ report

In the majority of cases it is considered appropriatefor owners/managers to engage an independentreporting accountant to examine the service chargeaccounts of a property rather than carry out an


audit, as the cost of an ‘audit’ in accordance withauditing standards is likely to be disproportionateand may not offer value for money.

Even where a lease requires the service charge tobe audited, or certified by the landlord’s auditors,owners and managers will need to make clearwhether an audit under accepted auditingstandards has been carried out or an independentaccountant’s report prepared.

The onus and style of an independent accountant’sreview differs from an audit. The procedures carriedout may include:

+ checking whether the figures contained in theinformation were extracted correctly from theaccounting records maintained by the manager;and

+ checking, based on a sample, whether entriesin the accounting records were supported byreceipts, other documentation or evidenceinspected.

It would be usual for the service charge statementsto be prepared, and certified, by the owner ormanager. In practice, for many small properties, thereporting accountant may be engaged to preparethe statements from accounting records maintainedby the owner or manager as well as providing theindependent accountant’s report. In thesecircumstances, the owner or manager will retainresponsibility for the preparation and certification ofthe statement.

Where the lease is silent or audit is optional,managers should not use an external audit orindependent accountant’s report as a means ofgiving credibility to service charge expenditure atthe occupiers’ expense, unless agreed with theoccupiers in advance. In addition, an audit orindependent accountant’s report should not beused as a substitute for an alternative method ofcertification specified in the lease, unless agreedwith the occupiers in advance.

If an occupier requests an audit (subject toclarification of ‘audit’ as above) or independentaccountants’ report, the manager should agree andthe costs thereof should be charged to theoccupier.

4.2.5 Recommended best practice+ Annual statements of service charge

expenditure should be certified by the manager

to confirm that they represent a true andaccurate record of the expenditure incurred bythe owner in supplying the services to thebuilding, and that the expenditure the owner isseeking to recover is in accordance with theterms of the leases.

+ Annual statements of service chargeexpenditure should be reviewed by anindependent accountant. However, to beconsistent with best value principles thisrequirement should be considered as optionalfor smaller properties and dependent upon thequantum and nature of the expenditure.

+ In certifying the service charge, managers havea duty of care to both owners and occupiers toact with professional care, diligence, integrityand objectivity.

+ Should the lease require an audit to be carriedout then this should be undertaken, unless theoccupiers confirm in writing that this is notrequired. In these circumstances, anindependent accountants’ report should beprepared.

The Institute of Chartered Accountants in Englandand Wales (ICAEW), the Association of ResidentialManaging Agents (ARMA) and RICS have issued aconsultation draft technical release to provideguidance on accounting for residential servicecharges. While this has been issued for publiccomment and further detailed guidance forcommercial service charges is to be issued in duecourse, this document provides useful furtherreading:

www.icaew.com/en/about-icaew/what-we-do/technical-releases

4.3 Standard industry costclassifications

Appendix B includes details of Industry StandardCost Classifications which must be used inreporting budget and actual expenditure.

The industry standard cost classifications provide 3levels of analysis as follows:

+ Cost class

+ Cost category

+ Cost description.


As a minimum acceptable level of reporting,service charge budgets and actual expenditurereports should be prepared at cost class and costcategory level.

Adoption of the standard industry costclassifications will reap enormous benefits for theindustry as a whole as this will facilitate better costcomparison between properties and the benchmarkindices and will also reduce costs and assist in thetransfer of information between managers andowners when properties are sold or there is achange of manager (i.e. from in-house to externalor between managing agents).

However, to achieve transparency in accordancewith the principles of this Code it is recommendedbest practice that budget and actual expenditureanalyses should be provided at the detailed costdescription level whenever practicable, andparticularly in respect of larger properties, with asummary of the total costs under each costcategory. However, for smaller properties or thosewith limited service charge expenditure (e.g.industrial sites) the minimum level of detail thatwould be acceptable would be to report at costcategory. However, this should generally beregarded as an exception rather than the norm.

To maintain consistent industry standards and tofacilitate benchmark comparison, managers andthose responsible for preparation of the accountsare encouraged to use all best endeavours tocomply with the cost class and cost categoryanalysis as set out and not permit the creation ofnew cost categories or cost classes.

However, the detailed cost descriptions set out arenot intended to represent an exhaustive list but areincluded for illustrative and guidance purposes only.Individual cost descriptions may vary from managerto manager and the inclusion of additional costdescriptions is encouraged where this will facilitategreater transparency and clarity with regard to theexpenditure incurred or proposed.

The use of the standard cost classes andcategories in industry standard format are essentialif benchmarking is to be effective. However, forbenchmarking purposes accounts are only requiredat cost category and cost class level. It is notintended that benchmark analysis of expenditureshould be carried out at cost description level.

4.4 Budgets and actual expenditureaccounting

The proposed guidance seeks to establish a basicframework for the preparation of service chargeaccounts, and to identify areas for specialconsideration by preparers and reportingaccountants/auditors.

As per item 20 of the core principles, the managerwill provide an estimate of likely service chargeexpenditure accompanied by appropriateexplanatory commentary on it to the occupiers,together with a breakdown of their proportion of thecosts, at least one month prior to thecommencement of the service charge year.

Detailed statements of actual expenditure, togetherwith accounting policies and explanatory text, willbe issued within four months of the service chargeyear end.

The accounts are to give an adequately detailedand comprehensive summary of items ofexpenditure with full explanations of any materialvariations (+ or -) against the budget, and in areasonably consistent format year on year.

It is recommended that the budgets and accountsare issued with a report that provides the followingminimum information:

+ A comprehensive level of detail to enableoccupiers to compare expenditure againstestimated budget.

+ Explanations of significant individual costs andof variances from the previous year’s budget/accounts.

+ Comparison against the previous two years’actual costs where appropriate.

+ Information on core matters critical to thataccount (e.g. levels of allocation,apportionment, contracts, report on tendering,etc).

+ The achieved and/or targeted measures ofimproved management performance (e.g.successes in delivering improved qualityservices and greater value for money).

+ Separately identified on-site management teamcosts.

+ Details and results of the last previous andforthcoming tendering exercise. Occupiers areto be advised of the contractors who areproviding the services.


+ Full apportionment matrix which clearly showsthe basis of calculation and the totalapportionment per schedule for each unit withinthe property/complex.

+ Date of issue.

A set of industry standard cost classifications hasbeen drawn up and included in appendix B (seealso 4.3). It is essential that these are used at costclass and cost category level.

4.5 Right to challenge

This Code cannot override an occupier’s right inlaw to challenge incorrect or inappropriate servicecharges subject to prevailing statute of limitations.

Where the manager has demonstrably compliedwith the provisions of the lease and this Code ofPractice, it is recommended that the manager allowoccupiers a reasonable period (e.g. four monthsfrom issue) in which to raise enquiries or requestfurther information in respect of the certifiedaccounts. Managers are expected to deal withreasonable enquiries promptly and efficiently andmake all relevant paperwork available forinspection. Where copies of the supportingdocumentation concerning the certified accountsare supplied, it is acceptable for an appropriate feeto be charged.

4.6 Change of owner or manager

In the event of a sale or change of manager it isessential that a definitive timescale within whichaccounts will be closed and handed over is agreed.

As soon as practicable, but not later than fourmonths, following the date of completion of a saleof a property or change of manager, full details ofall service charge expenditure, accruals, pre-payments, etc. for all outstanding service chargeyears should be provided to the new owner/manager up to the date of sale/transfer.

The new owner or manager should issue any futurebudget in such a way that it provides sufficientinformation to enable occupiers to compare it withthe last issued certified accounts and to converthistorical data into a consistent format forcomparison where they were not responsible forprevious years.

Further information with regard to the processesand procedures that should be followed in theevent of a sale of a property or other circumstanceswhere the manager changes is included in an RICSinformation paper: Commercial property servicecharge handover procedures.

This is particularly relevant to solicitors whendrafting and reviewing sale contracts.

4.7 On-account payments

Service charges are usually ‘reserved as rent’ in thelease. In reality the service charge is neutral inincome and expenditure terms, after year endbalancing charges/credits. Service charge monieswill be held in one or more discreet bank accounts,recognising that monies are held to deliver theservice expenditure.

Furthermore, and based on the principle thatowners should not profit from the supply ofservices all interest earned, or where separateaccounts are not operated per property a properand reasonable amount of interest calculated onnormal commercial rates, will be credited to theservice charge account (after appropriatedeductions have been made, i.e. bank charges, taxetc.). Where advance payments from more thanone property are held in a single account a properand reasonable amount of interest calculated onnormal commercial rates is to be credited to thebenefit of the service charge.

4.8 Interest on service charge accounts

Interest earned and late payment interest should becredited to the service charge account. Bankcharges and account operating costs are to be off-set against the interest. Owners are required toperform their obligations under the terms of thelease and account to occupiers for any balancingcharges due/owed at the end of the service chargeperiod.

Modern leases often enable owners to recover thecost of borrowing to fund major non-cyclicalexpenditure as a cost to the service charge. Inolder leases there is a risk of having to fundshortfalls from negative cash flows.

It is the owner’s responsibility to fund thecontribution from void units and to make thesepayments to the account as promptly as payments


made by occupiers. If an owner is not as prompt asoccupiers are required to be, interest chargesshould apply in line with payments by occupiers.

When communicating with occupiers throughbudget and expenditure reports, managers shouldunambiguously state their policy concerning thecrediting of interest to the service charge.

4.9 Forward funding of service chargecosts

Leases should enable owners to recover the cost ofborrowing to fund major non-cyclical expenditureas a cost to the service charge. In older leasesthere is a risk of having to fund shortfalls fromnegative cash flows. Where owners are creditinginterest earned to the service charge account, theyshould be reassured that charging the interest onborrowed money to fund major non-cyclicalexpenditure meets best practice.

4.10 Timeliness

It is the responsibility of the manager to provide theoccupiers with budget and reconciled accounts foranticipated and actual service charge expenditureat the appropriate time. This to include appropriateexplanatory comments with regard to costsproposed or incurred together with details of thebasis of apportionment, to enable occupiers toreasonably understand how their liability has beencalculated.

Budgets will be issued at least one monthprior to commencement and reconciledaccounts issued within four months of theend of the service charge year in question.

Where an occupier raises queries or seek furtherclarification on any matters relating to the budget oractual costs the manager shall deal with properenquiries promptly and efficiently.

4.11 Benchmarking and cost analysis

Adoption of the standard industry costclassifications (see 4.3 and appendix B) isconsidered essential to facilitate better costcomparison between properties and the benchmarkindices; and will also reduce costs and assist in thetransfer of information between managers andowners when properties are sold, or there is a

change of manager (e.g. from in-house to externalor between managing agents).

Further, these cost classifications are largelycompatible with industry benchmark indices, whichwill facilitate benchmark comparison of costs.

However, when using benchmark information tocompare operating cost for any building caution isneeded. Industry benchmark indices are notintended as a definitive database of costs foroperating service charges in commercial buildings,but do serve to highlight indicative trends in servicecharge costs. Buildings differ substantially in termsof construction, age, layout, gross to net floor arearatio, staffing and security levels, hours of operationand standards of maintenance and management.

These analyses take the average of service chargesfor similar properties and therefore provide a guideto the cost effectiveness of the managementservice. However, property is not mass produced insimilar formats (as is a car, for example) andtherefore each property will have its own variationsfrom the average. ‘Beating the benchmark’ is notnecessarily proof of service efficiency and value formoney. Industry benchmark indices provide anexcellent guide but managers may wish to reflectfurther on how their specific property is performingfrom a value for money perspective.

4.12 Value for money

In providing the services the owner/manager shouldat all times endeavour to achieve value for moneyand effective service rather than lowest price.‘Value for money’ can be simply defined as: ‘Payingno more for no less than is required.’

Occupiers are to be proactive in assistingmanagers with operating and using servicesconsistent with the aim of achieving value formoney e.g. separating waste to facilitateappropriate and cost effective recycling.

The manager is to keep costs under review, andwhere appropriate and in any event every threeyears, require contractors and suppliers to submitcompetitive tenders or provide competingquotations. However, where it is considered thatformal re-tendering would not be cost effective orpractical the manager should benchmark theservice standards and pricing to confirm value formoney is still being achieved.


It is advisable for managers to require major serviceproviders to demonstrate that their services,methods and processes are continually reviewed toensure value and efficiency.


5 Dispute resolution

There are times where managers and occupiersdisagree as to which services are chargeable, whatbenefit the occupiers individually or collectivelyreceive and/or how much they cost. Traditionally,leases have not allowed for any form of redress forthe occupiers and therefore expensive court actionhas been necessary to query the service charge(please refer to paragraph 4.5).

It will usually be of benefit to both owners andoccupiers to resolve service charge disputesquickly, as going to court can be slow andexpensive. Many occupiers can becomedissatisfied and, believing that disputing a servicecharge in the courts is not cost effective, withholdpayment instead. Occupiers should not arbitrarilywithhold payment of sums properly demanded,although where circumstances dictate any paymentwithheld should relate to the actual sums queriedor in dispute and not the whole of the servicecharge due.

Alternative dispute resolution (ADR) can provide amore cost effective way of resolving service chargedisputes than the courts and it is recommendedthat this process is used even when leases do notexpressly provide for it (see 5.1).

When disputes are resolved base rate interestshould be paid or allowed in respect of the periodduring which the relevant amount has beenunderpaid or overpaid. In mediation the parties willagree what they want and an independent expertwill determine what the lease says.

5.1 Alternative dispute resolution asindustry best practice

The glossary of terms in the Civil Procedure Rules1999 defines ADR as a: ‘Collective description ofmethods of resolving disputes otherwise thanthrough the normal trial process’.

Since April 1998 the courts have encouragedparties to use ADR rather than go to trial. FromApril 2006, the courts have been obliged to takeinto account whether the parties have given properconsideration to the use of Alternative DisputeResolution (ADR), and used it to resolve their

dispute if appropriate. The attitude of the courts isthat litigation should be a last resort. The courtscan require parties to provide evidence thatalternative means of resolving their dispute wereproperly considered. A party can be penalised incosts for failing to give proper consideration to theuse of ADR even if it wins at trial. Therefore it isstrongly recommended that in disputes aboutservice charges ADR should be considered beforetaking legal action.

All new leases (including renewals) should providefor ADR of service charge disputes, and if theparties cannot agree on the person to provide thatservice, a decision can be taken by the President ofRICS to appoint such a person. Applications forappointments of mediators, independent expertsand arbitrators by the President are managed bythe RICS Dispute Resolution Service (www.rics.org/drs).

Where leases contain no ADR clauses there isnothing to stop the owner and occupieragreeing to use ADR to help them find aresolution to a dispute between them. It ispossible that a party who declines to useADR if it is available could be penalised in acosts order if the court considers they haverefused to engage in ADR without a goodreason.

There are issues as to which form of ADR is mostappropriate to service charges. The options arevaried and include:

+ early neutral evaluation;

+ mediation (facilitative or evaluative);

+ independent expert determination; or

+ arbitration.

5.1.1 Early neutral evaluationEarly neutral evaluation (ENE) is an ADR processwhereby a neutral party is retained by both partiesto provide a non-binding evaluation on the merits ofa dispute. As the name suggests this is usuallymost effective if attempted early in the life of theprocess before positions become entrenched andsignificant costs have been incurred. There are noprocedural requirements for ENE beyond thoseagreed between the parties.


The advantages of ENE are that where parties areengaged in direct discussions, the opinion of amutually respected neutral may assist thenegotiations. An evaluative opinion from a neutralsurveyor who understands the practical issuesrelating to the management and administration ofthe service charge, or a senior legal professional ona disputed point of contractual construction, canassist the parties with a realistic appraisal of theircases and avoid deadlock and/or positionalbargaining.

5.1.2 Mediation

Mediation is a non-binding structured settlementnegotiation facilitated by a neutral third party, themediator, who has no decision-making power. Theobjective of mediation is to achieve a mutuallysatisfactory agreement between the parties ratherthan have something imposed by a third party.

In a facilitated mediation, the mediator encouragesthe parties to look at the issues from each other’spoint of view and their views are ‘reality tested’, sothat they can see the strength and weakness ofeach other’s respective positions. This processenables the parties to form a more balanced viewof their position and allows them to come to agenuine agreement as to a way forward.

In an evaluative mediation the mediator takes adifferent role and uses his or her expertise to givethe parties an honest appraisal of how theirdispute, or certain aspects of it, might play out in amore formal hearing. Armed with this information,the parties may then choose to negotiate asettlement on a different basis to anythingpreviously on offer.

A mediated settlement is generally recorded in aformal agreement (a contract). The mediationproceedings are ‘without prejudice’, which meansthat nobody can use what has been said orrecorded in the mediation in any subsequent legalproceedings, nor can the mediator be called as awitness in any subsequent court proceedings. Whatis said is confidential and remains confidential. Theprocess is informal. A mediation hearing often lastsno more than one day. This makes it cost effectivecompared to court, with the parties sharing thecosts of the mediation between them.

There are several organisations that can providemediators. RICS Dispute Resolution Services (DRS)can provide mediators who are chartered surveyorsexperienced in property matters.

There are no formal rules and procedures formediation and in some cases, the parties may wishto adapt the process so that it is less facilitative.

5.1.3 Independent expert determination

This is an ADR process where an independent thirdparty (usually a chartered surveyor or solicitor whois an expert in the subject matter) determines theoutcome of the dispute. The basis of theappointment of the independent expert is that he orshe is empowered by an agreement between theparties to make a final and binding decision. Theagreement of two parties to refer their dispute toindependent expert determination creates acontractual obligation on them to be bound by thedecision of the independent expert. It is veryunusual for such an independent expert’s decisionto be overturned by the courts.

The independent expert will usually be a specialistin the matter of service charges. It is, usual forparties to make submissions to the independentexpert, who will normally incorporate them into hisor her decision-making process. An independentexpert will generally make a decision on a disputebased on the application of his or her personalexpertise in the subject matter, the results of theirpersonal enquiries and the persuasiveness of theparties’ representations.

In independent expert determination, the parties willusually be invited to agree the precise issues whichare in dispute and the independent expert will thenset out the procedures to be followed to reach adetermination of the dispute. Occasionally theremay be need for a meeting of all the parties and/ora visit to the relevant property.

The fees of an independent expert are usually splitequally between the parties unless it is agreedbetween them that the expert will also decide whowill be responsible for his or her costs as part ofthe overall determination of the dispute.

Other costs, i.e. costs incurred by the parties inpreparing their case and instructing professional orlegal representation, are usually split between the


parties unless it is agreed between them that theexpert will also decide who will be responsible forinterparty costs as part of the overall determinationof the dispute.

While this process can be more formal thanmediation, the expert is free to use his ownknowledge and investigation to come to a final andbinding determination of a dispute.

5.1.4 Arbitration

Arbitration in England, Wales and Northern Irelandis regulated by the Arbitration Act 1996. In Scotlandit is regulated by the Arbitration (Scotland) Act2010. A request may be made to the RICS disputeresolution service for an arbitrator to be appointed,or the involved parties can agree on one. Theprocess is more formal and the arbitrator (who willno doubt have some knowledge of service charges)will decide the outcome of the dispute based onthe evidence before him. The arbitrator is notallowed to stray outside the evidence before him.

As with independent expert determination, theprocess may involve meetings known as ‘hearings’and submissions. The decision of the arbitrator isusually known as his ‘award’ and he is also entitledto decide on both his own costs and the costs ofthe parties in the dispute.

5.1.5 RICS DRS fact sheets

RICS DRS has issued a highly informative, recentlyreviewed series of easy to read fact sheets forsurveyors and the general public, covering thedifferent areas of disputes, courts, tribunals andother processes involved in resolving disputes.

The fact sheets mainly cover the jurisdiction ofEngland and Wales but some also cover theposition in other jurisdictions.

Please refer to www.rics.org/drtoolkit andwww.rics.org/disputeresolution for moreinformation.


6 Mixed use schemes

Recently there has been a huge increase in mixeduse developments but while the concept is notnew, what is different about mixed usedevelopments today is the increase in theintroduction of residential units into commercialbuildings driven not by organic growth but bypublic policy.

The mixture of commercial and residential uses, inmanagement terms, presents particular challengesand will often require both residential andcommercial service charge management skills andexpertise.

The extent to which the owner will be obliged toprovide and carry out works and services will, inrespect of both commercial and residential leases,depend upon the strict interpretation of the wordingof the lease. The Landlord and Tenant Act 1985(LTA), subsequently amended by the Housing Act1996 and Commonhold and Leasehold Reform Act2002, imposes statutory constraints in respect ofservice charges for residential properties.

It has been a common misconception among manypractitioners that if the residential element of a

mixed use scheme was ‘let’ under a single head-lease it would not be subject to the residentiallegislation. The cases of Heron Maple House Ltd vCentral Estates (2002) and Oakfern Properties Ltd vRuddy (2006) have determined that a owner of alease that includes both residential and non-residential elements will also need to follow thestatutory procedures laid by LTA 1985 (asamended) to ensure that non-recovery does notresult due to an infringement of the legislationdesigned to protect residential occupants only.

Further detailed information and guidance isavailable in two RICS information papers:

+ Managing mixed use developments; and

+ Apportionment of service charges in mixed usedevelopments

Your attention is also drawn to RICS Service chargeresidential management code, which is approvedby the Secretary of State for England and has RICSguidance note status.


7 Provision for anticipated futureexpenditure

The nature of commercial leases and in particularthe length of these leases has changedsubstantially in recent years. Many items managedunder the service charge will have a life expectancylonger than the lease term being granted. Ownersand occupiers need to carefully consider how theywill recover (or pay for) these major expenditureitems when they are due and so it is recommendedthat proper ‘planned preventative maintenance’(PPM) plans are used.

In addition to regular expenditure on services,owners and occupiers may need to make provisionfor occasional one-off outlays on replacing majoritems of equipment (e.g. a heating system). Majorexpenditure of a regularly recurring nature (i.e.external redecorations) can also cause significantfluctuations in the amount of service chargepayable each year.

To the extent that these items can be foreseen, itmay make sense for both parties to spread the costover a number of years by setting up a sinking fundor reserve fund, rather than charging the whole costto the current occupiers in the year in which theequipment is replaced. Some confusion has arisenas the description and purpose of such funds hasbecome interchangeable. The following definitionsset out industry guidance on how these termsshould be used.

A sinking fund (also known as a replacementfund) allows the owner to build up a fund to payfor repair and replacement of major items ofplant and equipment.A reserve fund is a fund intended to equaliseexpenditure in respect of regularly recurringservice items to avoid fluctuations in the amountof service charge payable each year.A depreciation charge enables the owner toinclude an amount in the service charge toreflect the ‘cost’ of the annual depreciation ofplant and equipment and is based on the initialcost of an installation, rather than the future costof replacement or repair.

Further detailed information and guidance isavailable in RICS information paper: Sinking funds,reserve funds and depreciation charges.


8 Initial provision, replacement andimprovement of fabric, plant andequipment

The service charge would usually be limited to therecovery of the reasonable costs of maintenance,repair and replacement (usually where beyondeconomic repair) of the fabric, plant, equipment andmaterials necessary for the property’s operation.

Service charge costs will not include:

+ any initial costs (including the cost of leasing ofequipment) incurred in relation to the originaldesign and construction of the fabric, plant orequipment

+ any setting up costs that are reasonably to beconsidered part of the original developmentcost of the property

+ improvement costs above the costs of normalmaintenance, repair or replacement (but seebelow); or

+ future redevelopment costs.

Service charge costs may include improvements orenhancement of the fabric, plant or equipmentwhere such expenditure can be justified followingthe analysis of reasonable options and alternativesand having regard to a cost benefit analysis overthe term of the occupiers’ leases. Managers shouldprovide the facts and figures to support and justifysuch a proposal.

Recent case law has determined that the length ofthe original or unexpired term of the tenant’s leasemay be a factor in determining whether costs arerecoverable. Current decisions do not giveoccupiers authority to sustain a proposition that, asa general rule, they cannot be required to payhigher service charge for works carried out towardsthe end of the term. If an owner can demonstratethat repairs are necessary to comply with itsobligations under the terms of the lease and withinthe life of the lease, the costs are likely to berecoverable even from a tenant whose lease isabout to end.

8.1 Initial provision of fabric, plant andequipment

Service charge costs will not include any initialcosts (including the cost of leasing of equipment)incurred in relation to the original design andconstruction of the fabric, plant or equipment. Theowner is expected to provide these.

This also extends to the cost of fitting out andequipping any on-site management facilities asthese costs will be indistinguishable from otherfacilities and equipment such as lifts; heating,ventilating and air conditioning plant; securitysystems; toilets; etc. which comprise part of theproperty. These systems will be expected to beprovided for the management, administration andoperation of the property’s services from the outset.

In line with best practice, the initial cost ofproviding such furniture and facilities are not to beincluded as part of the service charge.

8.2 Like-for-like replacement

The service charge should be limited to the costsof replacement and renewal of fabric, plant orequipment only if:

+ the relevant items being replaced or renewedare beyond economic repair, or efficient oreconomic operation;

+ replacement or renewal of such items is arelatively low cost when compared with themuch greater cost that might be occasioned bymaterial postponement of the replacement orrenewal; or

+ replacement or renewal of such items is aproper requirement of any public or competentauthority, legislation, or of the insurers.

Plant and equipment reaches the end of itseconomic life when it is more economic to replaceit than to retain and maintain it. Whether equipmentis approaching the end of its economic life or not is


determined by an inspection of the plant inoperation by an experienced engineer and a reviewof service records and records of the occurrenceand frequency of failures. As equipmentapproaches the end of its economic life it isreasonable to anticipate that failures will occur withincreasing frequency.

8.3 Replacement with enhancement

Where plant and equipment that has becomedilapidated or worn out is replaced, thereplacement will usually include an element ofenhancement over the previous equipment due tothe fact that the replacement will be to a modernequivalent standard.

Strictly speaking, replacement of plant andequipment by its modern equivalent wouldgenerally fall within the definition of repair and notimprovements. However, there may well be atendency towards exceeding the designspecification of the original equipment in order tomeet modern requirements or to introduce newproducts or practices intended to improve theservice levels and/or value for money.

If the costs are to be are recoverable through theservice charge it is important to consider whetherthe intention is to improve or repair the existingequipment.

If the additional cost of carrying out theimprovement can be justified on a cost-benefitbasis, e.g. a reduction in the ongoing maintenancecosts, increased energy efficiency, etc. there is acase for the service charge to pay. In suchcircumstances proper communication together withfigures to support and justify such a proposal willhelp achieve a practical and common sensesolution.

8.4 Improvement and enhancement

Service charges would not generally include thecost of improvement above the cost of normalmaintenance, repair and replacement as above; butit is likely that circumstances will arise whereowners and occupiers would see a direct benefitfrom the introduction of new innovations oradditional improvement or enhancements of the

building fabric, plant, or equipment. The servicecharge might include such costs where theexpenditure can be justified following analysis ofreasonable options and alternatives and havingregard to a cost/benefit analysis over the term ofthe occupiers’ leases. Managers shouldcommunicate any proposals clearly to occupiersand provide the facts and figures to support andjustify such a proposal (see also section 9).

8.5 Refurbishment

Refurbishment is a different concept toimprovement. Within the scope of the refurbishmentworks proposed there may be elements of catchingup on accumulated disrepair and elements ofimprovement.

The amount occupiers will contribute towards thecost of refurbishment will depend on the extent andnature of the works proposed and the wording ofthe lease.

Owners will seek to protect the value of theirinvestments and maximise rental levels.Refurbishments are often dictated by market forcesand timed to coincide with rent reviews or leaseexpiries. Occupiers often object to contributingtowards the cost of refurbishment because not onlywill they be paying for the cost of refurbishmentthrough the service charge but also throughincreased rents as a result of any improvements.

When refurbishments result in higher rental values,the owner is to be responsible for the cost ofenhancements or improvements above those ofmaintenance.

The need to carry out extensive repairs or toreplace services is also considered in the decisionto refurbish. Prior to a refurbishment, major repairsor replacements may be deferred to benefit fromeconomies of scale through placing one majorworks contract. The improved efficiency of the newenvironment and any improved services mayproduce cost savings in day-to-day servicesmanagement, resulting in the annual service chargebeing reduced.

Occupiers may still be liable for the costs of repairor replacement carried out as part of a larger


refurbishment contract, as though the works hadbeen started separately from the refurbishment.

8.6 Communication

If it is proposed to include the cost ofimprovements in the service charge, that factshould be communicated to occupiers before anyexpenditure is committed, to ensure agreement. Itwould be advisable to record any agreement inwriting.

In the case of refurbishment, the owner’s proposalsare to be communicated to all occupiers well inadvance of commencement of any works to explainwhich costs are to be the responsibility of theoccupiers through the service charge. Best practicealso recognises the need to establish regularcommunication between manager and occupiers tomonitor the refurbishment and what is to beconsidered as service charge costs. This reducesor avoids the potential for dispute over anyunexpected costs following completion of theworks.


9 Environmental Sustainability

The sustainability debate has very much focusedon how to develop more sustainable buildings. Butthis has ignored two key issues: what to do withexisting buildings, and the role of the occupier inreducing emissions. The recent emergence of greenleases in the UK may be one way of addressingthese issues. Green leases are standardcommercial property leases pertaining to to co-operation between owners and occupiers with theaim of reducing energy and water consumption andwaste production.

Owners and occupiers should be aware of theenvironmental impact of their respective operationsand this Code supports and promotes acooperative and collaborative approach inrecognising and managing the environmentalimpact of the occupation and management ofcommercial premises.

Leases are binding documents that are not easy toamend. There may be value in owners andoccupiers entering into a non-legally binding‘memorandum of understanding’, (MoU), whichprovides a roadmap for co-operation between theparties on improving the environmentalperformance of buildings. This allows the MoU tobe updated to reflect the latest business practiceas agreed.

Further information can be obtained from the BetterBuilding Partnership’s ‘Green Building ManagementToolkit’, which is available atwww.betterbuildingspartnership.co.uk/download/bbp-green-building-managment-toolkit-1.pdf andfrom www.leasingbusinesspremises.co.uk.

The sharing of data and other related information isessential, and owners, managers and occupiersshould co-operate on the running of any buildingmanagement systems and on a range of

environmental improvement measures. Non-reporting will incur heavy penalties for owners andoccupiers. Co-operation on data sharing isessential.

There should be a fair and reasonable approach to:

+ the apportionment of sustainability costsbetween owners and occupiers, although withthe emphasis on the ethos that the ‘pollutershould pay’

+ the carrying out of works that improve theenvironmental performance of the building; and

+ restrictions on works by either party whichadversely affect the environmental performanceof the building.

In accordance with the principles set out in thisCode, improved sustainability and otherenvironmental improvement measures should be afactor taken into account when considering andassessing whether any particular service or provideroffers value for money and in any cost-benefitanalysis carried out to justify improvement costsabove the costs of normal maintenance, repair orreplacement (i.e. the installation of energy efficientplant).

For the avoidance of doubt, the cost of obtainingan Energy Performance Certificate (EPC) would notnormally be considered to be a service chargerecoverable cost. An EPC is only required when abuilding is sold or rented and therefore has norelevance to nor is it a requirement for the provisionand management of common services.

However, costs which might subsequently beincurred in addressing any issues that come to lightas a result of obtaining an EPC might fall to theservice charge subject to the terms of the leaseand the principles set out in this Code.


10 Additional best practice guidance forshopping centres

10.1 Marketing and promotions

The marketing of and promotional activitysupporting a retail shopping centre scheme arerecognised as being of joint benefit to allstakeholders and are therefore rightly jointly funded.This joint funding should cover not just the actualmarketing and promotions, but also the costs ofproviding specialist staff (and accommodation, etc.)whether directly or via an agency arrangement.

The service charge budget and accounts should betransparent and should include the gross marketingand promotional expenditure and the contributionfrom the owner, to clearly show the net contributiondue from the occupiers.

It is best practice for marketing plans (includingpromotions) to be prepared and presented tooccupiers in advance of the period to which theyrelate. It is often useful to agree and regularlyreview marketing plans with occupiers/retailersassociation in order to analyse their effectivenessand to ensure that the stated objectives areachieved. Where the service charge bears the cost,all pedestrian flow data collected is to be issued tooccupiers, as a matter of course.

As marketing and promotions are of joint benefit, itis important for owners/managers to encourageoccupiers to recognise that they have an obligationto proactively communicate their views on the bestapproach to marketing centres.

Costs incurred in relation to the initial promotionallaunch or rebranding of a scheme are to be borneby the owner and are not to be considered asservice charge recoverable costs. Re-launching acentre should be discussed between manager andoccupiers and an appropriate split of theexpenditure to each party agreed.

The cost of entertainments, attractions, Christmasand other seasonal decorations and events withinthe shopping centre is not usually considered to bea marketing and promotional cost but are to beregarded as amenities or facilities. Where such

costs are included within the service charge theywould not be jointly funded as above.

The marketing of vacant units in the scheme is nota service charge item.

10.2 Commercialisation (non-coreincome)

Increasingly owners are finding additional non-coreincome streams from their investments. It is clearthat they are entitled to receive this income fromthe investment they have made; if, however, theservice charge has provided either the initial capitalor provides ongoing services for the income streamthen the income is to be a credit against theservice costs. When the owner provides the capitalbut uses the services to support the operation, anappropriate contribution to the service charge is tobe made. Best practice is for the owner to clearlystate his policy with regard to miscellaneousincome within the development.

As well as rents being collected on occupationalleases, income is also generated from othersources. Many properties receive income fromvending machine takings, selling recyclable waste,etc., while shopping centres and malls also receiveincome from promotional space (e.g. advertising ondisplays and drums, and in car parks) and licencesgranted for other mall activities (e.g. children’srides, photo booths, etc). Occupiers may also have(chargeable) use of photocopiers in themanagement offices. How such income is treatedvaries considerably from property to property andowner to owner.

There is to be a clear statement of policy on howand to where costs and income generated fromservices and activities in the centre/malls areallocated. Transparency is required at all times.

Income derived from the provision of a service oractivity, the cost of which is included in the servicecharge, is to be treated as a service charge credit,e.g. photocopy and fax reimbursements, etc.


Income derived from promotional activity is to becredited to the marketing expenditure budget.

Where the owner retains income from common partareas and the space is used on a permanent orsemi-permanent basis, e.g. barrows or kioskswithin shopping malls, the space is to be includedin the service charge apportionment matrix orappropriate equivalent credit given for the costs ofthat space.

For less substantial or temporary fixtures, a sum isto be credited to the service charge to reflect acontribution towards the benefit of the servicesenjoyed. Owners are to estimate and declare acontribution to the service charge to reflect thebenefit and use of the common services enjoyed.

Managers are to clearly state their policy on howcosts and income generated from services andactivities are allocated. The simple rules are:

+ If the item is not funded by the service charge,nor does it use any services, 100% of theincome goes to the owner

+ If the item is funded by the service charge, theincome is credited to the service charge (e.g.photocopying for occupiers)

+ If the item uses some of the services and/orneeds support from the site team who are paidby the service charge, a contribution, inaccordance with the policy, is to be made tothe service charge.

In addition to the minimum information set out in4.4, budgets and actual expenditure reports shouldalso include a statement detailing how incomegenerated from commercialisation or mall income isdealt with, and how shared services are charged,setting out how they impact on, and whatreimbursement has been made to, the servicecharge.

10.3 Apportionment of service chargesin shopping centres: weighted floor areaapportionment

Please also see paragraph 1.5 and RICSinformation paper: Allocation and apportionment ofservice charge costs which provide generalguidance.

In addition to the usual recommended methods forthe apportionment of service charges, in manyshopping centre developments a ‘weighted floorarea’ basis of apportionment is often used whichseeks to reflect the different costs involved inservicing different sized units.

A ‘weighted floor area’ apportionment discounts thepercentage the occupier will pay over a certain sizeto reflect the benefit of the services provided. Thefloor area is divided into bands with a progressivediscount and is a similar concept to the zoning ofshops for rental purposes.

Therefore, for example, a 5,000 sq. metre unit maynot cost five times that of a 1,000 sq. metre unit,but a 500 sq. metre unit may cost twice that of a250 sq. metre unit.

There is no such thing as a standardweighting formula. Where the use of aweighted formula is considered to beappropriate this should be formulated toreflect the particular circumstances, size ofunits, layout and use of the scheme beingserviced:

The following is included for illustrative purposesonly:The first 500 m2 @ 100%The next 500 m2 @ 80%The next 2,000 m2 @ 70%The next 2,000 m2 @ 60%Excess over 5,000 m2 @ 50%In this example, a 1,000 m2 unit has a weightedfloor area of 900 m2 [i.e. (500 x 100%) + (500 x80%)] whereas a 10,000 m2 unit will have aweighted area of 6,000 m2. Although 10 timeslarger in floor area, the 10,000 m2 unit paysapproximately six and a half times the servicecharge of the smaller unit.Similarly, the floor area of ancillary basement andupper floors accommodation, or remote storage,might be discounted to reflect the reducedbenefit derived from certain services as distinctfrom the ground floor retail space or mainoffices.

For the avoidance of doubt, a reasonable and fairlyadministered weighting formula for apportionmentof the service charge cannot usually be considereda concession.



Section 3:Appendices



Appendix A: Best practice compliancechecklistThe compliance checklist is included below as a basis to enable owners, managers and occupiers to self-assess compliance with the core principles as set out in this Code. However, ‘ticking the boxes’ does not ofitself constitute full compliance with the Code, which also includes the further recommended best practicesupporting the core principles.

Core principle Evidence Comply

Value for moneyProcure an appropriate level of service for theoccupiers in the building.Demonstrate that services offer good value formoney.

Competitive tender

Other market testing

Cost benchmarking

TransparencyAll costs, apportionments and policies explicitand open to any scrutiny by occupiers or theiragents.

All apportionment schedules published

All policies outlined in budget packs

Detailed explanations provided in year endstatements where costs have materiallyvaried from budget

Landlord bearing cost of all voids andconcessions

Timeliness of reportingAll reports issued within timeframes requiredby the Code.

Budgets issued at least one month prior tothe start of the service charge year

Year end statements of actual expenditureissued within four months of the servicecharge year end

Management feeThe management fee reflects a reasonablecost to undertake necessary work to manageand operate the services and administer theservice charge.

Fixed fee (not % of service charge)

Meets Code guidelines on what can andcannot be charged for management

Duty of care to occupiers – consultationand approvalAll costs are recoverable in accordance withleases.Occupiers consulted, where appropriate togain agreement to levels of service andservices to be offered.

All occupiers given the opportunitycomment on the budget

Occupiers consulted on levels of serviceand/or the introduction of new services


Standardised financial reportingBudgets and statements of actual expenditurereported in line with the Code’s costcategories.Where appropriate, separate schedulesprepared to allocate costs to reflectavailability, benefit and use of differentservices.

Standardised cost categories used

Separate schedules included asappropriate

Interest income and expensesSeparate interest bearing accounts operatedfor each building, with all interest income andexpenses credited or expensed within theservice charge.

Bank statement of interest income andexpenses

Code compliant terms in new leasesNew leases have adopted Code compliantterms.

Standard lease terms

Support for alternate dispute resolution(ADR)ADR is supported and recommended as thebasis to resolve service charge disputes


Appendix B: Standard industry costclassificationsB.1 Overriding principles

B.1.1 Transparency

+ State fee basis.

+ Explicitly show management fees and siteresourcing costs.

+ State whether figures are given inclusive orexclusive of VAT. Industry benchmarking will beundertaken exclusive of VAT.

B.1.2 Flexibility

+ The cost descriptions are not intended torepresent an exhaustive list, but are used forillustrative purposes only.

+ Owners and managing agents are encouragedto include additional cost descriptions wherethis will facilitate greater transparency andclarity with regard to the expenditure incurredor proposed. However, to maintain industrystandards and to facilitate benchmarkcomparison, it is suggested that the cost classand cost category structure is not altered.

B.1.3 Level-handedness

+ Distinguish between base operational costs(management, utilities, soft services, hardservices), income and exceptional expenditureto allow benchmarking on a like-for-like basis.

+ Where income is being yielded to the servicecharge, separately identify any associatedoverhead and analyse this alongside thecorresponding income to derive a net income.The true benefit of any ‘commercialisation’ canthereby be clearly identified.

B.1.4 Additional notes

+ Where reasonable and appropriate cost shouldbe allocated to separate schedules andseparate cost categories are not to be used todescribe activities provided across differentelements of a subject property, e.g. estate, carpark, etc. However, where multiple schedulesare not used, in order to achieve transparency itmay be necessary to repeat certain costdescriptions to make a clear distinctionbetween specific areas where costs haveactually been incurred, e.g. estate cleaningcosts and car park cleaning costs.

B.2 Cost class

Cost categoryCost description Notes

MANAGEMENT1 Management fees

Management feesOwner or managing agent fees for managingand administering building servicesexcluding rent collection, etc.

2 Accounting feesService charge (S/C) accounting fees Fees for preparation of year end service

charge statement and reconciliation

S/C independent accountant’s fees Independent accountant’s fees to review theyear end service charge accounts

S/C audit fees Auditor’s fees to audit the service charge


3 Site management resourcesStaff costs Direct employment or contract costs for provision

of staff for management of on-site facilities

Receptionists/concierge Direct employment or contract costs for provisionof reception and concierge staff, includingassociated administrative and training costs

Site accommodation (rent/rates) Rent, service charge and rates associated withsite management accommodation

Office costs (telephones/stationery) Costs of equipping and running site managementoffice

Petty cash Miscellaneous minor expenditure incurred inrelation to site management duties

Help desk/call centre/information centre Operational costs for providing helpdesk/callcentre/information centre facilities

4 Health, safety and environmental managementLandlord’s risk assessments, audits and reviews Consultancy fees and other costs associated with

provision and review of owner’s health and safety(H&S) management systems

5 ElectricityElectricity Electricity supply to common part and retained

areas and central plant, excluding occupier directconsumption

Electricity procurement/consultancy Consultancy and procurement fees for negotiatingelectricity supply contract and auditing of energyconsumption [author query: entry duplicated]

Fuel (standby electrical power) Fuel oil to run any standby electrical powersystems

6 GasGas Gas supply to owner’s central plant, excluding

occupier direct consumption

Gas procurement/consultancy Consultancy and procurement fees for negotiatinggas supply contract and auditing of energyconsumption

7 Fuel oil (heating)Fuel Oil Fuel oil supply to owner’s central plant, excluding

occupier direct consumption

Fuel oil procurement/consultancy Consultancy and procurement fees for negotiatingoil supply contract and auditing of energyconsumption

8 WaterWater and sewerage charges Water supply to central plant, common part and

retained areas excluding occupier directconsumption

Water consultancy Consultancy fees incurred in reviewing waterusage


SOFT SERVICES9 Security

Security guarding Direct employment or contract costs incurred inproviding building security guarding

Security systems Servicing and maintenance of building securitysystems (e.g. CCTV, access control, intruderalarm)

10 Cleaning and environmentalInternal cleaning Cleaning of internal common part and retained

areas

External cleaning Cleaning of external common part and retainedareas

Window cleaningHygiene services/toiletries Cleaning and servicing of common parts’ toilet

accommodation

Carpets/mats hire Provision of dust and rain mats to common partareas

Waste management Refuse collection and waste managementservices provided for building occupiers

Pest control Pest control services provided to common partand retained areas

Internal floral displays Providing and maintaining floral displays withinthe common part areas

External landscaping Provision and maintenance of externallandscaped areas and special features

Snow Clearance/gritting Costs incurred in snow clearance and supply ofsnow clearing equipment and gritting salt

Seasonal decorations Provision and maintenance of seasonaldecorations to common part areas

11 Marketing and promotionsEvents Promotional events

Marketing Marketing and advertising in accordance withmarketing strategy

Research Research into local market conditions, customersurveys, etc.

Staff costs Direct employment or contract costs for provisionof marketing and promotional activity

Landlord’s contribution to marketing Financial contributions made by landlord towardsmarketing and promotions

Local authority contribution to marketing Financial contributions made by local authoritytowards marketing and promotions

HARD SERVICES12 Mechanical and electrical services (M&E)

M&E maintenance contract Planned maintenance to the owner’s M&Eservices, including contractor’s H&S compliance


M&E repairs Repair works to the owner’s M&E services

M&E inspections and Consultancy Auditing quality of maintenance works, conditionof M&E plant and H&S compliance

Life safety systems maintenance Planned maintenance works to the owner’s fireprotection, emergency lighting and otherspecialist life safety systems, includingcontractor’s H&S compliance

Life safety systems repairs Repair works to the owner’s fire protection,emergency lighting and other specialist life safetysystems

Life safety systems inspections and consultancy13 Lifts and escalators

Lift maintenance contract Planned maintenance works to lifts in thecommon part and retained areas, includingcontractor’s H&S compliance

Lift repairs Repair works to common parts’ lifts

Lift inspections and consultancy Auditing quality of maintenance works, conditionof lift plant and H&S compliance

Escalator maintenance contract Planned maintenance works to escalators in thecommon part and retained areas, includingcontractor’s H&S compliance

Escalator repairs Repair works to common parts escalators

Escalator inspections and consultancy Auditing quality of maintenance works, conditionof escalator plant and H&S compliance

14 Suspended access equipment Suspended access equipment includes all formsof high-level access equipment maintenance, i.e.hatchways, eye-bolt, fall address and cradles

Suspended access maintenance contract Planned maintenance works to the owner’ssuspended access equipment, includingcontractor’s H&S compliance

Suspended access repairs Repair works to the owner’s suspended accessequipment

Suspended access inspections and consultancy Auditing quality of maintenance works, conditionof suspended access equipment and H&Scompliance

15 Fabric repairs and maintenanceInternal repairs and maintenance Repair and maintenance of internal building

fabric, common part and retained areas

External repairs and maintenance Repair and maintenance of external buildingfabric, structure, external common part andretained areas

Redecorations Redecoration and decorative repairs


INCOMEDistinct activities that yield a true income to theservice charge account

16 InterestInterest Interest received on service charge monies held

within owner’s or agent’s bank account17 Income from commercialisation Income yielded from any facilities installed and/or

maintained at the occupier’s expenseCar park incomeVending machine incomeOtherOperational expensesContract charges Overheads, expenses and operational costs

incurred in providing any of the commercialisationfacilities

Repairs and maintenanceStaff costs

INSURANCE18 Engineering Insurance Landlords engineering insurances

Engineering insuranceEngineering inspections

19 All risks insurance cover Landlord all risk insurance costsBuilding insuranceLoss of rent insurancePublic and property owner’s liabilityLandlord’s contents insurance

20 Terrorism insurance Landlord’s terrorism insurance coverTerrorism insurance

EXCEPTIONAL EXPENDITURE21 Major works

Project works Exceptional and one-off project works, over andabove routine operational costs

RefurbishmentsPlant replacementMajor repairs

22 Forward fundingSinking funds Forward funding of specific major replacement

projects (e.g. plant and equipment replacements,roof replacements)

Reserve funds Forward funding of specific periodic works toeven out fluctuations in annual service chargecosts (e.g. internal/external redecorations)

Depreciation charge Depreciation charge in lieu of sinking/replacementfund contribution of major plant and equipment


Appendix C: Example reports

C.1 Example service charge reconciliation and expenditure report

[Property Name]Service Charge Reconciliation and Expenditure Report

Period: [dd/mm/yyyy] to [dd/mm/yyyy]

Property Address[xxxxxxxxxxxxxxxxxxxxxxxxxxx][xxxxxxxxxxxxxxxx][xxxxxxxxxxxxxx][xxxxxx]

Date [dd/mm/yyyy]


Service Charge Reconciliation and Expenditure report

[Property name and address]

[dd/mm/yyyy] to [dd/mm/yyyy]

Total Service Charge Expenditure £

1.0 IntroductionThis report has been produced by [manager’s name] on behalf of [owners name], landlords of [propertyname] and relates to the reconciled service charge for the period [dd/mm/yyyy] to [dd/mm/yyyy]. Thisreport has been produced having regard to the best practice guidelines for service charges in commercialproperty that have been published through the collaboration of a number of professional bodies representinga diversity of interests throughout the property industry.

The report is intended to provide further explanation as to actual service charge costs incurred and anymaterial variances against the property budget issued to tenants on [dd/mm/yyyy]. A summary and detailedexpenditure report is included at Appendix I with a variance report showing percentage charge year on yearat Appendix II.

2.0 The management team

[Insert names and contact details of management team i.e. Property Managers, Building/Centre Manager,Accounts manager]

3.0 Explanatory notesA full copy of the budget is enclosed at Appendix I in both summary and detail form. The total anticipatedexpenditure for [property name] is £xxx split across x schedules.

The expenditure comprises the following:

[Note to managers: Include summary information under each heading detailing service provided, cost ifappropriate and comment on specification or staffing levels, last tendered etc. Explanatory notes are to includea detailed explanation of significant individual costs together with an analysis and full explanation of anymaterial variances between budget and actual expenditure.]

3.1 Management

Management Fees


Accounting Fees

Service Charge Audit Fees

Site Management Resources

Staff Costs

[Include details of on site management team]

Reception/Concierge/Operation Staff

[Explanation and detail of support staff directly employed]

Site Accommodation

[Explanation as to costs of site accommodation]

Office Costs

Petty Cash


Help desk/call centre/information centre

Health & Safety and Environmental Management

3.2 Utilities

Electricity

Electricity

Electricity procurement/consultancy

Gas

Gas

Gas procurement/consultancy

Fuel Oil

Fuel Oil


Fuel Oil procurement/consultancy

Water

Water and sewerage Charges

Water consultancy

3.3 Soft Services

Security

Security Guarding

Security Systems

Cleaning and Environmental

Internal Cleaning


External Cleaning

Window Cleaning

Hygiene Services/Toiletries

Carpets/Mats Hire

Waste Management

Pest Control

Internal Floral Displays


External Landscaping

Seasonal Decorations

Marketing and Promotions

Events

Marketing

Research

Staff Costs

Landlord’s Contribution to Marketing


Local Authority Contribution to Marketing

3.4 Hard Services

Mechanical & Electrical Services (M&E)

M&E Maintenance Contract

M&E Repairs

M&E Inspections & Consultancy

Life Safety System Maintenance

Life Safety System Inspection & Consultancy

Lifts & Escalators

Lift Maintenance Contract


Lift Repairs

Lift Inspections & Consultancy

Escalator Maintenance Contract

Escalator Repairs

Escalator Inspections & Consultancy

Suspended Access Equipment

Suspended Access Maintenance Contract

Suspended Access Repairs


Suspended Access Inspections & Consultancy

Fabric Repairs & Maintenance

Internal Repairs & Maintenance

External Repairs & Maintenance

Redecorations

3.5 Income

Interest

Bank Interest

Income from Commercialisation

Car Park Income

Vending Machine Income


Other

Contract Charges

3.6 Insurance

Engineering Insurance

Engineering Insurance

Engineering Inspections

All Risks Insurance Cover

Buildings Insurance

Loss of Rent Insurance

Public & Property Owner’s Liability Insurance


Landlord’s Contents Insurance

Terrorism Insurance

Terrorism Insurance

3.7 Exceptional Expenditure

Major Works

Project Works

Refurbishments

Plant Replacement

Major Repairs


Forward Funding

Sinking Funds

Reserve Funds

Depreciation Charge

4.0 Service charge allocation and apportionmentService Charge Allocation

Costs are allocated to separate schedules and the costs apportioned to those who benefit from thoseservices as follows:

[Insert list of schedules and description]Schedule 1 EstateSchedule 2 Building 1Schedule 3 Building 3

Schedule 1 – Estate

[Insert detailed description of schedule and basis of allocation]

Schedule 2 – Building 1



Schedule 3 – Building 2


Apportionment

The service charge costs are apportioned in line with occupational leases. The method of apportionment is[detail apportionment method used].

A full apportionment schedule for the [property / estate / centre] is attached at Appendix III.

5.0 Empty units and concessions granted to tenants.

Where appropriate, costs are apportioned on a daily basis and for the avoidance of doubt it is confirmedthat the Landlord bears an appropriate proportion of the service charge expenditure in respect of voids andvacant premises.

Likewise if any tenant has any form of concession, whereby their contribution towards the service charge iscapped, or is lower than the apportionment due, the Landlord pays the difference.

6.0 Service procurement

[Insert statement as appropriate with regard to the owner/manager’s procurement policy and contractorselection criteria, frequency of contract tendering, benchmarking of costs etc.]

7.0 Notes on accounts

7.1 Accounting principles

[Include appropriate notes as to accounting principles adopted in the preparation of the accounts and whetherthe statements are prepared on an accruals or cash basis]

7.2 VAT

With effect from [dd/mm/yyyy] the Landlord elected to waive the exemption from Value Added Tax (alsoknown as an Option to Tax). Therefore all service charge expenditure is shown exclusive of VAT. VAT will becharged at the appropriate rate on all service charge payments invoiced by the Landlord and shown as aseparate item on a VAT invoice.

OR

The Landlord has not elected to waive the exemption from Value Added Tax. |therefore all service chargeexpenditure is shown inclusive of VAT where applicable.

[Delete as appropriate]


7.3 Sinking fund and reserve fund

[Include a description of the intended purpose for any sinking fund or reserve fund, together with anexplanation of the tax treatment of contributions to and interest earned on such funds, and details of the trustwhere such monies are held.

A statement of all contributions to and expenditure from the sinking fund or reserve fund account together withthe account opening and closing balances and the amount of interest earned and tax paid in the relevantperiod.]

7.4 Interest

A separate interest-bearing account for occupier on-account payments is operated by the owner/managerand all interest earned and late payment interest is credited to the service charge account. Bank chargesand account operating costs are off-set against the interest.

8.0 General notes

[Insert any other relevant information]


9.0 SERVICE CHARGE CERTIFICATE

Model Landlord Surveyor’s certificateCertification Period: [dd/mm/yyyy] to [dd/mm/yyyy]

Landlord: ...............................................................................................................................................................

Managing Agent: ..................................................................................................................................................

Building: .................................................................................................................................................................

[Manager Name] is the Managing Agent responsible for the production of the service charge certificate forthe period [dd/mm/yyyy] to [dd/mm/yyyy] in respect of [Property Name]

I can confirm that this service charge certificate has been produced in compliance with the terms set out inthe lease and, where this does not deviate from the lease, in accordance with the RICS Service ChargeCode of Practice (current edition).

I hereby certify that, according the information available to me, the attached statement of service chargeexpenditure records the true cost to the landlord of providing the services to the property for the period.

Signed ....................................................................................................................................................................

[Name and Qualifications] ...................................................................................................................................

Position ...................................................................................................................................................................

For and on behalf of [Manager Name]


C.2 Example Summary Expenditure Report

SUMMARY EXPENDITURE REPORTPeriod [dd/mm/yyyy] to [dd/mm/yyyy]Property Address ..........................................................................................................................................................................

Cost Category Expense Total Schedule 1Estate

Schedule 2Building 1


MANAGEMENT1 Management Fees £60,000 £10,000 £25,000 £25,000

2 Accounting Fees £1,600 £1,600

3 Site Management Resources £71,135 £21,135 £26,600 £23,400

4 Health, Safety and Environmental £10,000 £10,000

Sub Total £142,735 £42,735 £51,600 £48,400

UTILITIES5 Electricity £229,900 £5,900 £112,000 £112,000

6 Gas £11,050 £1,050 £5,000 £5,000

7 Fuel Oil (Heating) £0

8 Water £7,000 £3,500 £3,500

Sub Total £247,950 £6,950 £120,500 £120,500

SOFT SERVICES9 Security £144,100 £137,500 £3,500 £3,100

10 Cleaning & Environmental £185,730 £52,250 £58,300 £75,180

11 Marketing & PromotionsSub Total £329,830 £189,750 £61,800 £78,280

HARD SERVICES12 Mechanical & Electrical Services £187,970 £32,750 £74,750 £80,470

13 Lift & Escalators £24,500 £14,000 £10,500

14 Suspended Access Equipment £5,300 £2,800 £2,500

15 Fabric Repairs & Maintenance £99,325 £36,850 £40,700 £21,775

Sub Total £317,095 £69,600 £132,250 £115,245

INCOME16 Interest -£1,068 -£332 -£373 -£363

17 Income from CommercialisationSub Total -£1,068 -£332 -£373 -£363


INSURANCE18 Engineering Insurance £900 £500 £400

19 All Risks Insurance Cover20 Terrorism Insurance

Sub Total £900 £0 £500 £400

EXCEPTIONAL EXPENDITURE21 Major Works £92,483 £92,483

22 Forward Funding -£90,000 -£90,000

Sub Total £2,483 £0 £2,483 £0

Grand Total £1,039,925 £308,703 £368,760 £362,462


C.3 Example service charge detailed expenditure report

DETAILED EXPENDITURE REPORTPeriod [dd/mm/yyyy] to [dd/mm/yyyy]Property Address ..........................................................................................................................................................................

Cost Category Expense Total Schedule 1Estate



MANAGEMENT1 Management fees

Management fees £60,000 £10,000 £25,000 £25,000

2 Accounting feesS/C audit fees £1,600 £1,600

3 Site management resourcesStaff costs £15,000 £15,000

Receptionists/concierge £50,000 £26,600 £23,400

Site accommodation (rent/rates) £4,335 £4,335

(telephones/stationery) £1,800 £1,800

4 Health, safety & environmentalRisk assessments & audits £10,000 £10,000

Subtotal £142,735 £42,735 £51,600 £48,400

UTILITIES5 Electricity

Electricity £224,000 £112,000 £112,000

consultancy £5,600 £5,600

Fuel (standby electrical power) £300 £300

6 GasGas £10,000 £5,000 £5,000

Gas procurement/consultancy £1,050 £1,050

7 Fuel oil (heating)8 Water

Water & sewerage charges £7,000 £3,500 £3,500

Subtotal £247,950 £6,950 £120,500 £120,500

SOFT SERVICES9 Security

Security guarding £132,000 £132,000

Security systems £12,100 £5,500 £3,500 £3,100

10 Cleaning & environmentalInternal cleaning £91,200 £38,400 £52,800

External cleaning £15,500 £15,500

Window cleaning £22,800 £9,600 £13,200

Hygiene services/toiletries £8,180 £4,500 £3,680

Waste management £9,050 £9,050

Pest control £1,600 £700 £500 £400

Seasonal decorations £1,000 £500 £500

Internal floral displays £9,400 £4,800 £4,600

Estate cleaning £18,000 £18,000

External landscaping £9,000 £9,000

11 Marketing & promotionsSubtotal £329,830 £189,750 £61,800 £78,280


HARD SERVICES12 Mechanical & electrical services

M&E maintenance contract £151,250 £20,000 £63,000 £68,250

M&E repairs £16,250 £2,150 £6,750 £7,350

M&E inspections and consultancy £7,500 £7,500

Life safety systems maintenance £11,350 £2,350 £5,000 £4,000

Life safety systems repairs £1,620 £750 £870

13 Lift & escalatorsLift maintenance contract £21,000 £12,000 £9,000

Lift repairs £3,500 £2,000 £1,500

14 Suspended access equipmentMaintenance contract £5,100 £2,700 £2,400

Repairs £200 £100 £100

15 Fabric repairs & maintenanceInternal repairs & maintenance £50,000 £35,000 £15,000

External repairs & maintenance £6,775 £6,775

Redecorations £5,700 £5,700

Estate repairs & maintenance £32,100 £32,100

Car park repairs & maintenance £4,750 £4,750

Subtotal £317,095 £69,600 £132,250 £115,245

INCOME16 Interest

Interest -£1,068 -£332 -£373 -£363

17 Income from commercialisationSubtotal -£1,068 -£332 -£373 -£363

INSURANCE18 Engineering insurance

Engineering insurance £900 £500 £400

19 All risks insurance cover20 Terrorism insurance

Sub Total £900 £500 £400

EXCEPTIONAL EXPENDITURE21 Major works

Plant replacement £92,483 £92,483

22 Forward fundingSinking funds -£90,000 -£90,000

Subtotal £2,483 £0 £2,483 £0

GRAND TOTAL £1,039,925 £308,703 £368,760 £362,462


C.4 Example service charge variance report

EXPENDITURE VARIANCE REPORTPeriod [dd/mm/yyyy] to [dd/mm/yyyy]Property Address ..........................................................................................................................................................................

Previousyear actual

Current yearbudget

Current yearactual

Actual vBudget

Current vprevious

actualMANAGEMENT1 Management fees £60,000 £60,000 £60,000 0.00% 0.00%

2 Accounting fees £1,500 £1,600 £1,600 0.00% 6.67%

3 Site management resources £66,000 £70,000 £71,135 1.62% 7.78%

4 Health, safety & environmental £5,000 £15,000 £10,000 -33.33% 100.00%

Subtotal £132,500 £146,600 £142,735 -2.64% 7.72%

UTILITIES5 Electricity £218,700 £236,000 £229,900 -2.58% 5.12%

6 Gas £9,700 £12,500 £11,050 -11.60% 13.92%

7 Fuel oil (heating)8 Water £6,880 £7,500 £7,000 -6.67% 1.74%

Subtotal £235,280 £256,000 £247,950 -3.14% 5.39%

SOFT SERVICES9 Security £144,100 £144,100 £144,100 0.00% 0.00%

10 Cleaning & environmental £176,543 £180,000 £185,730 3.18% 5.20%

11 Marketing & promotionsSubtotal £320,643 £324,100 £329,830 1.77% 2.87%

HARD SERVICES

12 Mechanical & electricalservices £193,750 £180,000 £187,970 4.43% -2.98%

13 Lift & escalators £24,500 £24,500 £24,500 0.00% 0.00%

14 Suspended access equipment £5,300 £53,000 £5,300 -90.00% 0.00%

15 Fabric repairs & maintenance £34,500 £50,000 £99,325 98.65% 187.90%

Subtotal £258,050 £307,500 £317,095 3.12% 22.88%

INCOME16 Interest -£989 -£1,000 -£1,068 6.80% 7.99%

17 Income from commercialisationSubtotal -£989 -£1,000 -£1,068 6.80% 7.99%

INSURANCE18 Engineering insurance £800 £1,000 £900 -10.00% 12.50%

19 All risks insurance cover20 Terrorism insurance

Subtotal £800 £1,000 £900 -10.00% 12.50%

EXCEPTIONAL EXPENDITURE21 Major works £90,000 £92,483 2.76%

22 Forward funding £25,000 -£90,000 -£90,000 0.00% -460.00%

Subtotal £25,000 £0 £2,483 -90.07%GRAND TOTAL £971,284 £1,034,200 £1,039,925 0.55% 7.07%


C.5 Example Apportionment Schedule

APPORTIONMENT SCHEDULEPeriod [dd/mm/yyyy] to [dd/mm/yyyy]Property Address ..........................................................................................................................................................................

Unit/Address Tenants Area (m2) Schedule 1Estate



Building 1 (Tower Block)Ground Floor 10,600 7.41% 10.43%

1st Floor, 15,400 10.76% 15.16%

2nd-4th Floors 46,200 32.29% 45.47%

5th Floor 4,900 3.42% 4.82%

6th Floor 4,900 3.42% 4.82%

7th Floor 4,900 3.42% 4.82%

8th Floor 4,900 3.42% 4.82%

9th Floor 4,900 3.42% 4.82%

10th Floor 4,900 3.42% 4.82%

Total Building 1 101,600 100.00%Building 2Ground Floor & First Floors 9,750 6.81% 23.49%

1st Floor, 6,500 4.54% 15.66%

2nd Floor 6,500 4.54% 15.66%

3rd – 5th Floors 18,750 13.10% 45.18%

Total Building 2 41,500 100.00%

Grand Total 143,100 100.00%



Section 4:Additional information



1. Glossary and terminology

Accrual Accounting This is considered to be the standard accounting practice for most servicecharges, with the exception of very small operations. This requires that costsare recognised in the accounts when incurred, not when the invoice isactually paid. This is the opposite of cash accounting, which recognisestransactions only when there is an exchange of cash.

Accruals These are expenses incurred in a period for which no invoice has beenreceived at the period end. As the cost relates to the period, it must becharged to the service charge account for that period.

Adjudication Adjudication is a simple and efficient method of settling disputes, whereby anadjudicator uses his/her own knowledge and investigations, while weighingthe evidence presented by the parties, in order to reach a decision that islegally binding until such time as the original dispute is referred to arbitrationor the courts, or is settled between the parties themselves.

Administration charges The managers costs in procuring services direct (i.e. not through a contractor)and where the actual cost of the service (e.g. the site management team) isrecovered through the service charge. The administration charge is intendedto reimburse the manager’s indirect costs (e.g. payroll, HR etc) and arerecorded to the cost category where they are incurred, as they would be if theservice were contracted.

Alternative disputeresolution (ADR)

The collective description of methods of resolving disputes other than throughthe normal trial process.

Allocation The splitting of costs of a service and allocating them to a specific scheduleor cost category.

Apportionment The spreading of costs within schedules between occupiers who benefit fromthe services in that schedule, based on the availability, benefit and use of theservices.

Arbitration Arbitration is a procedure whereby two parties in dispute agree to be boundby the decision of an independent third party (the arbitrator). The role of anarbitrator is similar to that of a judge, though the procedures are often lessformal and an arbitrator is usually an expert in his/her own right.

Balancing charge The resulting difference between an individual tenant’s apportionment ofexpenditure and the on-account service charges demanded from that tenantfor any specific service charge accounting period, also having regard to anyservice charge concessions that may have been granted.

Commercial property All property that is not residential or agricultural, includes retail, office,industrial and leisure properties.

Depreciation charge The ‘cost’ to the owner representing the measure of the wearing out,consumption or other reduction in life of an asset.

Direct charges Any expenditure that is charged directly to individual occupiers and notfunded via the on-account service charges.

RICS dispute resolutionservice (DRS)

RICS DRS can provide a simple fast and cost effective approach toresolving disputes in the complicated world of property and constructionwhere disputes are bound to arise.


Early neutral evaluation(ENE)

ENE is an alternative dispute resolution technique. ENE is voluntary,confidential and conducted on a ‘without prejudice’ basis. The evaluation isnon-binding and aims to help clarify and define legal and factual issues in thedispute, identifying risks and likely outcomes before further significantresources are spent on the dispute.

Gross internal area(GIA)

The area of a building measured to the internal face of the perimeter walls ateach floor level in accordance with the RICS Code of measuring practice.

Independent expertdetermination

Independent expert determination in the UK, and other territories, is a processin which an independent third party, acting as an expert rather than as ajudge or arbitrator, is appointed to decide a dispute (as an independentexpert or ‘expert determiner’ – not to be confused with an ‘expert witness’).

In trust Money kept in a separate named account held in trust to the account of itsowner.

International TotalOccupancy Cost Code(ITOCC)

ITOCC from IPD Occupiers Property Databank (OPD) was designed to be thestandard form of measuring property and facilities costs for all businessesand public sector organisations. The code is prepared with the help of IPDoccupier and other leading occupiers, consultants, accountants, serviceproviders, developers and academics. As ‘total’ suggests, it takes account ofall costs of occupancy, not just those in the common parts.

Mediation The generally accepted description of commercial mediation is a voluntary,non-binding, private dispute resolution process in which a neutral personhelps the parties to reach a negotiated settlement. A core principle ofmediation is that the parties ‘control’ the outcome, rather than it beingimposed upon them.

Manager The person or team that budgets, forecasts, procures, manages and accountsfor the services that comprise the service charge, whether they are the owner,an in-house team, management company or a managing agent (including anywholly or partly owned related companies).

Management Charge The management charge is the reasonable price for the total cost ofmanaging the provision of the services at the location, and relates only towork carried out in managing and operating the services and administeringthe service charge.

Management fees The remuneration of the manager (including his profit element) for managingthe services comprised in the service charge. Typically this includes thesupervision of the site team, overseeing the site contractors and the accountswork necessary to budget, forecast, manage, disperse, balance and apportionthe service charge. Specifically these fees are not to include propertymanagement work separate from the service charge such as ownerapprovals, income generation or rent collection.Where the subject property/site management team is not sufficiently large tojustify specific service managers (e.g. Health & Safety manager or buildingsurveyor) additional specialist fees may be charged to the relevant costcategory for the ‘manager provided’ service.

Marketing andpromotions

Advertising and other forms of promotion of a shopping centre intended tobring additional custom to the centre (as distinct from attractions andentertainments of a general amenity, benefit, service or attraction within thecentre).

Matrix An array of costs set out in rows and columns used as a system of methodsand principles used in the allocation and apportionment of costs betweenoccupiers.


Net internal area (NIA) The usable area within a building measured to the internal face of theperimeter walls at each floor level in accordance with the RICS Code ofmeasuring practice.

Not for profit, not forloss

Description of the service charge costs, which are not inflated for profit(although the individual services within the costs may contain a profit elementfor the individual supplier); but also, there is no residual loss (assuming afully-let property with no concessions on service costs to specific occupiers)left for the owner to pay.

Occupier A person in possession or occupation of premises and usually responsible forpayment of the service charge to the owner.

Office service chargeanalysis report(OSCAR)

Produced by Jones Lang LaSalle, OSCAR is an industry-leading benchmark.The industry cost classifications set out in Appendix 1 have been designedand agreed with IPD Occupiers so that the OSCAR data can be incorporatedinto ITOCC from its OSCAR form for regular year-on-year, but not exceptionalexpenditure.

On-account servicecharge

An estimated charge raised in advance and in anticipation of the final servicecharge liability, calculated from the service charge budget.

Owner The person who receives or is entitled to receive the rent. This person isusually responsible for the provision of, management of, and administration ofthe services and the service charge.

Prepayments Expenses paid in a given period that relate to the following period in whole orpart.

Rateable value An official estimate of the value of a property used as a basis of localtaxation. Rateable value is said to be the amount equal to the rent at whichthe property might reasonably be expected to let from year to year if theoccupier undertook to pay all the usual occupier rates and taxes and bear thecost of repairs and insurance and other expenses (if any) necessary tomaintain the property in a state to command that rent.

Re-branding The upgrading of house style, logos, names badges, etc.

Re-launching Marketing to change the perception in the eyes of its target audience. Thismay be for letting purposes (an owner’s cost) or may benefit both owner andoccupier, e.g. a shopping centre following refurbishment in which caseagreement should be reached as to how the re-launch costs are split betweenthe parties.

Reserve fund A fund intended to equalise expenditure in respect of regularly recurring itemsto avoid fluctuations in the amount of service charge payable each year.

Retail prices index(RPI)

Retail Prices Index or such other comparable national statistic published fromtime to time.

Services Where the word ‘services’ is used, the reference includes works, such asmaintenance and repair of the fabric and structure, and true services such asthe provision of heating, lighting, cleaning, security, etc.

Service charge account The service charge funds held for a specific property.

Service chargeapportionment

The method and details of apportioning liability of the tenants for contributingto a service charge.


Service chargereconciliation

A complete comparison of all service charge income demanded to servicecharge expenditure (including accruals and prepayments), for a given servicecharge accounting period) that enables the calculation of any balancingcharges and credits due from tenants and/or landlords.

Schedules The allocation of service charge costs into separate parts to reflect theprovision, usage, benefit, or availability of services between individuals orgroups of occupiers.

Sinking fund A fund intended to meet the cost of repair and replacement of major items ofplant and equipment and fabric.

Void liabilities The share of the agreed service charge expenditure for any service chargeaccounting period that is attributable to vacant lettable accommodation.


2. Further Reading

Forrester, P., Case in Point: Service Charges (2nd edition), RICS Books, Coventry, 2008

Forrester, P. and Gibb, C., Residential and Commercial Service Charges: A Surveyor’s Handbook (1st edition)RICS Books, Coventry, 2008

Freedman, P. et al, Service Charges: Law and Practice (3rd edition), Jordan Publishing Ltd, 2002

Tanfield Chambers, Service Charges and Management: Law and Practice (2nd edition), Sweet & Maxwell Ltd,London, 2009

Bannister, E. Commercial Leases 2009: A Surveyor’s Guide (2nd edition), RICS Books, Coventry, 2008

Joint industry publication, A Good Practice Guide: Shopping Centre Marketing and Promotions (endorsed byBCSC, BRC, PMA, BPF and RICS)

The Code for Leasing Business Premises in England and Wales 2007



Service charges incommercial property

RICS Practice Standards, UK

2nd edition, code of practice

Service charges in commercial property2nd edition, code of practice

This new Code has been produced as part of a cross industry initiativein light of ongoing concerns about disputes over service charges andtheir alleged lack of transparency. Its stated aims are:

• To improve general standards and promote best practice, uniformity,fairness and transparency in the management and administration ofservices charges in commercial property.

• To ensure timely issue of budgets and year end certificates.

• To reduce the causes of disputes and to give guidance to resolvingdisputes where these do occur.

• To provide guidance to solicitors, their clients (be they owners oroccupiers) and managers of service charges in the negotiation,drafting, interpretation and operation of leases in accordance withbest practice.

This Code recognises the lease as paramount and advises owners,occupiers and professional advisers to interpret leases as far aspossible in line with the Code, and to modernise leases whenopportunities arise, such as during new lettings or renewals.

rics.org/standards rics.org/standards

GN 24/2011

Documents

Service Charges in Commercial Property Second Edition