The aim of the new “deliberately challenging” code is to produce a more transparent and effective service charge system and improve relations between landlords and tenants.

While there have been previous codes of practice on service charges, this latest code will have the status of an RICS guidance note and could be used as evidence of good practice in disciplinary or court proceedings.

With the total cost of service charges to the UK office market at £3.25bn per annum* and increasing yearly above the rate of inflation, it is understandable that firms are questioning the annual growth in service charge costs as they look for ways to manage down costs and protect their bottom line.

Research by Loughborough University found that many properties do not actually have service charge budgets and that where budgets do exist they are often poor estimates of actual costs. Even when service charge budgets land, they often arrive so late in the year that it is difficult for business tenants to effectively monitor costs. The research also found that service charge certificates can be up to two years or more out of date and the way in which costs are described can differ from building to building making comparisons impossible. Moreover, final costs can be almost a third (30%) higher than originally anticipated costing UK businesses a significant £942m per year.

The new service charge code calls for building owners to submit certified accounts to occupiers within four months of the end of the service-charge year and to provide estimates of forthcoming expenditure with explanatory notes one month before it is due to start. If actual costs rise significantly above the budgeted costs, landlords must notify occupiers in the same year.

With tenants giving landlords an overall satisfaction rating of just 39 out of 100 in a survey published last year by the RICS**, it is clear that the Commercial Property Service Charge Code of Practice will be welcomed by occupiers with open arms. Landlords have the next seven months to work closely with their managing agents to ensure that the principles of the code are adhered to and the required changes to their systems and practices are made.

For more information about the service charge code of practice please contact Richard Williams at Bruton Knowles on 0121 212 7626.

* Loughborough University Service Charge Study, February 2005
**RICS, March 2005