SERVICE CHARGES How the new Code will affect

SERVICE CHARGES How the new Code will affect you and your client A presentation to the Annual Conference of the Property Litigation Association by: Chris Edwards FRICS Managing Director Commercial Property Advisors Ltd © April 2008

• Chris Edwards is Managing Director of Commercial Property Advisors Ltd, an independent niche consultancy that provides practical commercial solutions for owners and occupiers of commercial property. • Previously he headed a UK top 40 real estate consultancy. • With more than 30 years experience he is a specialist in commercial property management matters; he is chair of the RICS commercial property faculty, has advised Government through various committees on a range of commercial property issues and is a Past President of ISVA. Recently he represented RICS on the Code for Leasing Business Premises steering group and he chaired the pan-industry group that developed the new Code of Practice on Commercial Service Charges which is now a RICS guidance note. He is the author of several papers on management and service charge issues.

• Chris advises commercial property owners, occupiers and management organisations on all property matters, be they strategic, policy, operational or tactical – he brings impartial clarity to the matter whether as adviser or independent expert. • He also acts as Expert Witness for parties in service charge disputes and is a member the RICS President’s panel of Independent Experts to determine service charge disputes as well as a mediator

Why create a new code? • • • Previous guide 7 years old MPs concerned ODPM concerned Business practice moved on Princes House v Distinctive Clubs

Service Charge Code update Fully effective 01 April 2007 Additional information papers on the website imminently Scottish and Northern Ireland codes launched Holland coming soon

Service Charge Code update Key points: Communication Transparency Timeliness

Service Charge Code update Objectives • Remove service charge as an area of conflict • “Not for profit, not for loss” • A budgetted/forecastable part of the occupier’s overhead • Cash neutral to the owner’s income stream

What is new? • Duty of care and right to challenge • Recognition of the regular need to review/modernise • Right to amend apportionment • Record the methodology of the new regime

What is new? (cont’d) • Timescales • Budgets and Year Ends • Change of owner or manager • Variance RPI + 2% • Manager’s fees • Not a % of spend • Admin charges

Industry Standard Cost codes: • Cost Class – management • Cost Category – management fees, audit fees, site management resources • Cost Code – “sub” of cost category unique to individual managers

Service Charge Code update Dispute Resolution • New practice direction from DCA • New panel RICS Service Charge specialists • Appointment by President of RICS of Independent Experts

Service Charge Code update Dispute Resolution (cont’d) • Expert Determination • Evaluation • Neutral • Facilitative • Stakeholder engagement and consultation • Arbitration • PACT

Mixed Use Service charges Beware of residential rights! S. 20 RTM - Oakfern Properties v Ruddy - Heron Maple House v Central Estates Ltd

Sinking & Reserve Funds, Depreciation charges Browns Operating Systems v Southwark Roman Catholic Corporation (2007) Diocesan

Where next? • Code is iterative • Groups working on further information specifically: • Whose money is it? ‘ 54 Act/0’May, Sinking Reserve & Depreciation funds, Mezzanines, Commercialisation, PM/FM Contracts, Accounts handover following sale. • Internationalise

Service Charge Code www. servicechargecode. co. uk or www. ricsbooks. org

Thank You Chris Edwards Commercial Property Advisors Ltd chrisedwards@commpropadvisorsltd. com www. commpropadvisorsltd. com 07834 620096