In June 2006 the Royal Institution of Chartered Surveyors (RICS) introduced new guidance when addressing service charges in commercial property. It requires members to comply with it so far as possible.

The key objects of the code are :

1. Remove service charges as a area of conflict.
2. Deliver a budgetable and forecastable part of the tenant’s overheads.
3. Ensure service charges that are “not for profit, not for loss” and are cash neutral to the owner’s income stream.
4. Encourage transparency and communication in the relationship between landlord and tenant.

The code does not override the terms in an existing lease. The code sets out best practice and addresses the following :‐

• Management :
  This section covers a landlord’s duty to manage and a tenant’s right of reasonable challenge.
• Communications :
  The code considers the timeliness of communication and the fact that it is a two‐way process.
• Transparency :
  This will aid communication and prevent disputes as well as aiding benchmarking.
• Service Standards and Provision :
  In addressing procurement the code looks at different methodologies for procuring services and how to achieve value for money.
• Administration :
  This looks at budget/accounts and the necessary timeliness as well as what is required when ownership changes. Sinking, replacement, and reserve funds are also addressed as well as interest on service charge accounts.

The code also addresses the methodology for calculating management fees and what can and cannot properly be included.

Apart from setting timing targets for budget consultation and year end accounts within four months of the year end the code also sets out what to advise the tenants should a service charge budget be reliably forecasted to have a likely out term of more than 2% plus RPI over the budget. The code can be found on the RICS website www.servicechargecode.co.uk.