Service Charges Flashcards
What can you tell me about RICS Professional Statement on Service Charges?
Professional statement which sets out mandatory requirements for the management and administration of service charges.
There are 3 main parts to the professional statement
- Aims of the professional statement and the mandatory requirements
- 24 Core principles to support the mandatory requirements
- Recommendation and guidance on how to comply with the mandatory requirements and core principles.
What is the aim of the Service Charge Professional Statement?
- To promote best practice, uniformity, fairness and transparency
- Ensure timely issue of budgets and year end certificates
- Reduce causes of disputes
- Provide guidance for negotiation and drafting of service charge clauses in leases
What are the 9 mandatory requirements?
- Expenditure recovered must be in accordance with the lease terms and (2) no more than 100% can be recovered
- Service charge budgets, (4) service charge accounts and (5) apportionments matrix’s should be issued annually to all tenants in conjunction with explanatory commentary.
- Service charge monies held on one or more discrete bank account
- Interest earned on service charge accounts should be credit to the service charge account.
- Only disputed service charge monies should be witheld
- Adjustments relating to service charge accounts following a dispute should be resolved without delay
What are the 11 topics which cover the 24 Core Principles?
- Service costs
- Allocation and apportionments
- Communication and consultation
- Duty of care
- Financial Competence
- Occupier responsibilties
- Dispute resolution
- Timeliness
- Transparency
- Value for money
- Exclusions
What are the core principles for Service Costs?
- Transparent costs so all parties are aware of how costs are made up
- Services procured on a value for money basis
- Owners should not profit from the provision of services - must reflect actual costs
What are the core principles for Allocation and Apportionment (2)?
- Costs should be categorised
5. Basis and method of apportionment should be fair and reasonable to reflect those who benefit from the services.
What are the core principles for Communication and Consultation (3)?
- Consult with occupiers regarding the quality of the service charge provision.
- Communicate with occupiers to ensure services are delivered effectively
- Should demonstrate how managers are complying with professional statement
What are the core principles for Duty of Care?
- Duty of care if you are certifying service charge accounts to act with professional care, diligence, integrity and objectivity.
- Clear polices how the service charge will be managed
What are the core principles for Financial Competence (3)?
- Managers should act as experts when issuing statement of accounts.
- Annual statements of service charge accounts should be supported by an independent review
- Industry standard cost classifications should be used in reporting budget requirements.
What are the core principles for Occupier Responsibilities?
- Occupiers to ensure prompt payment of service charges.
- Occupiers should recognise service charge provisions in any lease has a legal effect.
- Occupiers should be proactive in assisting owners in the operation and utilisation of services.
What are the core principles under Dispute Resolution?
- New leases to contain a provison for alternative dispute resolution.
- If the parties cannot agree a mediator or an independent expert, the RICS will appoint someone.
What are the core principles for Timeliness?
- Timely communication with occupiers to help avoid disputes.
- Issue budgets to occupiers and apportionment matrix at least one month prior to the service charge year and then a statement detailing expenditure within 4 months of service charge year end.
What are the core principles under Transparency?
- Be transparent in the accounts and explanatory notes to help prevent disputes and to provide prompt notification of variances in the service charge budget.
What are the core principles under Value for Money?
- Service quality should be appropriate to the location, use and character of the property.
Should procure quality service standards to ensure value for money.
What are the core principles under Exclusions?
- Service charge costs should not include
- Initial costs for leasing equipment
- Costs for fitting out management offices
- Improvement costs above the the costs of normal maintenance, repair or replacement.
- Future redevelopment costs
- Costs for void premises
