Terms of the lease

If asked to advise a landlord or its managing agents, building surveyors must check with care the terms of the lease

Author: Vivien King

25 June 2019

'Service charges' the words so often equate, sorry to say, to arguments and disputes in the landlord and tenant field. Thank heavens, say building surveyors, that the arena is one for management surveyors and not for us. But is that so? And can building surveyors afford to ignore the new RICS Service charges in commercial property professional statement?

Although this document is a first edition professional statement, as of 1 April 2019 it supersedes three former editions published as codes of practice; applies throughout the UK; and contains mandatory requirements for all RICS members acting in the service charge field.

The lease provisions should, of course, always be read with care. The professional statement does not override these provisions but should be read in conjunction with them.

The services to be provided by a landlord and for which it can charge its tenants are set out in the service charge provisions in the relevant lease. Words such as 'repair'. 'maintain', 'amend' and 'renew' appear often, and the principles applied to a tenant's covenant to repair – in which the same words are so commonly used – will be applied in this context too. Judgments in service charge cases will ring very loud bells with the many building surveyors working in the field of dilapidations.

Take for instance the Hon. Mr Justice Blackburne's judgment in the service charge case Fluor Daniel v Shortland Investments [2001] EWHC 705 (Ch).

"Judgements in service charges cases will ring very loud bells with the many building surveyors working in the field of dilapidations"

Before implementing works pursuant to service charge provisions it presupposes that 'the item in question suffers from some defect (i.e. some physical damage or deterioration or, in the case of plant, some malfunctioning) such that repair, amendment or renewal is reasonably necessary', the judge said.

Furthermore, he stated, 'the condition of the item in question must be such as to be no longer reasonably acceptable, having regard to the age, character and locality of the premises, to a reasonably minded office tenant of the kind likely to take a lease of the building. Whether, once those conditions are established, the item must be repaired or renewed is a question of fact and degree having regard to the nature and extent of the defect and, not least, to the costs likely to be involved.'

Sound familiar? Of course it does.

It reflects judgments in numerous dilapidation cases and, as with covenants to repair, the precise wording of the service charge provisions will vary from lease to lease. Sadly, many disputes highlight that the varying wording is misunderstood, misinterpreted, or worse ignored. Those seeking to recover the costs of works that the landlord wishes done will often make assumptions as to what the provisions say.

No longer. The first mandatory requirement of the new professional statement is: 'All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.' If asked to advise a landlord or its managing agents, building surveyors must check with care the terms of the lease in question.

Although the remaining mandatory requirements are clearly addressed to management surveyors – covering for instance the provision of an explanatory commentary to accompany budgets, preparation of accurate and timely accounts and keeping service charge monies in separate bank accounts – building surveyors should be aware of them. The mandatory requirements are underpinned by core principles, which cover, for instance, allocation, as well as a demonstrably fair and reasonable apportionment of the service charge between the tenants.

The financial level of service charges has often come as a nasty shock to tenants; that should no longer be the case. Timely and regular communication and consultation with the tenants should ensure that they understand what will be provided and at what cost. Also, improvement costs above those of normal maintenance, repair or replacement should not be included.

So, should building surveyors ignore this professional statement? Certainly not.

Vivien King is a consultant to Malcolm Hollis vivien.king@malcolmhollis.com

Related competencies include: Landlord and tenant, Property management

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