The RICS Residential Service Charge Management Code

Written by Theresa Tyack Wednesday, 02 December 2009 13:43

If you own a flat or apartment and pay a service charge, then this applies to you.

The new 2^nd Edition of the Code came into effect from 6^th April 2009 and has been produced in order to comply with statute and to promote good practice in the management of residential leasehold property where a service charge is payable and where the landlord is not a public sector authority or Registered Social Landlord.

The code addresses key matters such as:

• Service charges, ground rent and administration charges.
• Accounting for other peoples’ money.
• Reserve funds; accounting for service charges and auditing of service charge accounts.
• Contractors and repairs.
• Insurance.
• Provision of information.
• Complaints about property managers.

For years the residential property management sector has been blighted with examples of unregulated firms providing a poor quality service to their clients operating at the very boundaries of the law.

The RICS though, and with input from its member firms and associated organisations, have produced this code of practice which raises the bar in terms of residential property management providing the long leaseholder with greater transparency, clarity and understanding of what, for some lessees, can be a complicated and worrying process. To briefly summarise, it provides a mechanism to deal with firms who do not come up to scratch.

Openness and transparency are the new “buzz words” for this, and the RICS’ sister code written for service charges in commercial properties which came into force on 1^st April 2007. There is an emphasis on enhancing communication and consultation with long leaseholders and breaking away from what had traditionally been an adversarial relationship.

Service charges have long been a battleground between an unregulated managing agent and a leaseholder, with agents setting large budgets to pay for major capital items like external redecorations and then taking back-handers from the contractor who submits an inflated price.

RICS firms and firms operating to the RICS code have to adhere to a strict consultation procedure, where they are seeking monies for works, where the apportioned cost, inclusive of VAT, to any one or more lessee will exceed £250.00. Up to 3 notices may have to be served on the lessees: the first, identifying the works and inviting lessees to put forward contractors to quote; the second, providing a synopsis of the apportioned financial costs, including Vat and fees. Finally, in the event of a contractor suggested by the lessees, not being used, a third notice must be issued giving reasons for that decision.

If your managing agent is not doing this, they are breaking the law and cannot demand monies for these extra works from you.

Another common area for dispute is accounting for service charge monies. Consumer style TV programmes and the papers are littered with examples of managing agents who demand service charges and then never account to lessees detailing how and where their money was spent. The RICS code and those firms operating to code will have each years service charges audited by a qualified accountant, furthermore, the lessees have a right to come into the managing agent’s office and inspect all of the invoices.

An important element of the role of a managing agent is to instruct contractors to carry out repairs to common areas or items the freeholder or management company have liabilities to repair under the terms of the lease. Often the competence of the contractor can be questionable, leading to costly or ineffective repairs. The RICS code stipulates that only competent contractors should be used, and to this end, Miller Commercial operates a rigorous “approved contractor” scheme which investigates not only competency, but a contractors Health & Safety policy and their levels of insurance cover.

A full coverage and explanation of the Code is beyond the remit of this article, but full copies of the Code are available from the Royal Institution of Chartered Surveyors.

Miller Commercial, the Duchy’s largest independent firm of Chartered Surveyors based in Princes Street Truro, is expanding its residential property management portfolio. Miller Commercial not only operates strictly to this Code of Practice, but in many cases exceeds its requirements.

We act for freeholders and management companies charged with the management of the blocks of flats they occupy. Having a properly qualified professional managing agent will assist you in maintaining the value of your asset and at the same time allows our clients to rest easy in the knowledge that the property is compliant with all current legislation and that they are no longer exposed to fines or prosecutions.

Miller Commercial prides itself on proactivity rather than reactivity and an excellence in service delivery and communication. Whilst we invest in, and utilise to the full, all modern methods of media, we also know that the best method often remains face to face contact.

Nick Maffey at Miller Commercial will be running a series of free no obligation one to one property surgeries at their offices in central Truro. Further information on the Code or any other Property Management matters, or to arrange your free consultation appointment may be obtained by contacting Nick direct.

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