Earlier this week RealService Best Practice Group presented the 2011 Service Charge Compliance Index, an initiative aimed at promoting transparency in service charge management. This year’s analysis focused on measuring landlords’ and managing agents’ compliance with the RICS Service Charge Code recommendations on the timely delivery of documents.

Best practice guidelines (aka the Code) suggest that service charge budgets ought to be delivered at least one month prior to the start of the service charge period; the certificate of expenditure to be provided not later than four months after the end of the related service charge period; and the account packs to be transferred to the new managing agent within four months upon completion of sale or change of agent.

Compared to the last year no improvement was observed in timely delivery of certificates, while the two other areas delivered worse compliance. A few participants did extremely well though, which optimistically suggests that strictly compliant performance is achievable.

The overriding message from the RealService was that there is a need for a greater sample of properties to analyse, which ultimately reflects the need for greater participation in the initiative.

It will be interesting to see whether the new edition of the RICS Code, coming into force in October, makes any difference next year.  The Code’s authors believe the new format “will be simpler to follow and easier for parties to adopt and comply with”.  Of course, the Code of Practice is still a recommendation only and cannot be enforced upon the industry.  At the end of the day, it is left up to the practitioners to decide whether compliance forms part of their business strategy.

Finally, it was felt that the tenant community, particularly in the office sector, should be more involved in initiatives like this.  The benefits of compliance are straightforward. Timely delivery of service charge budgets and certificates of expenditure reduces occupier’s financial risk exposure, where more significant amounts imply bigger risks.