The RICS code of practice on service charges needs “significant tightening” to prevent conflict between landlords and tenants, property consultant Donaldsons has warned.
Partner, Charles Woollam, believes that “critical deficiencies” in the code, which comes into force on 1 April, have not been addressed.
The code aims to standardise the structure for formulating service charges and recommends that all new leases contain clauses to enable disputes to be settled using a panel of experts appointed by RICS.
Under the arrangements, tenants would pay a set amount each month to cover likely service charges for the year.
However, Woollam has criticised the lack of provision for payment adjustments if service charges are significantly higher or lower than budgeted.
He said: “Failure to address this means that the code leaves both parties potentially exposed to cost shortfalls, making conflict all the more likely.
“If the landlord is underspending against the budget, it now has a duty to tell the tenant, but is still under no obligation to return any moneys until the end of the year. In many ways, this is even worse because the tenant will now know that the landlord has collected too much but still can’t get at it.”
Conversely, landlords could set deliberately higher estimates to eliminate the prospect of overspending, Woollam added.
However, RICS vice-chairman Christopher Edwards said the code, which has been endorsed by the British Property Federation, the British Retail Consortium, the British Council for Offices, the British Council for Shopping Centres and Property Market Analysis, will help to ensure that disputes between owners and occupiers become “a thing of the past”.
He said: “By setting down best practice we intend to give owners, occupiers, managers and advisers a simple set of standards that all users of commercial property can expect”.
BPF chief executive Liz Peace said: “The best landlords take responsibility for the service standards that their tenants receive; when this becomes the norm, good practice will be achieved. The principles enshrined in the code are a step forward, and I would urge all parties in the industry to familiarise themselves with them.”
