The draft Service Charge Residential Management Code has been published, promoting best practice in respect of the management of residential leasehold property.

With around 4.6 million leasehold properties in England, the RICS Service Charge Residential Management Code impacts on every leaseholder and the service charges they pay.

This draft Code includes several key updates and the period for consultation ends on 16 May.

Key considerations of the updated draft include

– The new code clarifies that it applies to Landlords as well as managing agents and is not limited to RICS members.

– Registered providers of social housing, which include housing associations and local authority housing providers, have previously been excluded from the Code but will fall within the scope of this new edition.

– PPM (planned preventative maintenance) plans and projected levels of reserve fund contributions should be made available to leaseholders on request.

– Commissions, remuneration and other benefits received by the landlord or managing agent in respect of the placing of insurance and the procurement of services or utilities will need to be reported to leaseholders annually. Where there is no benefit to the leaseholder by the landlord or managing agent receiving commissions, then the commission should be used to offset the service charge costs.

– Industry standard cost classifications (Appendix A of the draft Code) have been included in the new Code, which mirror the cost classifications set out in the RICS commercial service charge professional statement:

  • Cost class;
  • Cost classification; and
  • Cost description.

The inclusion of the standard cost classifications will promote transparency and consistency and better cost comparison between buildings.

Observations
It could be argued that the standard cost classifications may be too rigid for many buildings. It may be considered that there should be three standard cost classifications, which would take into account the complexities of larger buildings, including in particular Building Safety costs:

  • Buildings under 11 metres;
  • Buildings between 11 metres and 18 metres; and
  • Buildings over 18 metres.

– Explanatory notes should accompany the annual service charge expenditure statement. The notes should explain variances between budget and actual expenditure and provide more transparency to the expenditure statement.

Observations
It could be argued that the notes should include not only the basis of the management fees charged by the managing agent but also full details of the service contracts where the landlord or managing agent has a direct or indirect interest with full disclosure of the fees earned.

– The Building Safety Bill, which received Royal Assent on 28 April, finally gets a mention in the draft Code at 8.2. The act has been eagerly awaited in the residential property management industry and the RICS should carefully reflect on its contents and provide appropriate guidance in the new Code.

Have your say on the draft Code by clicking here.

For any queries on service charge residential management, please get in touch with me at sam.routledge@mapartners.co.uk.

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