This is considered to be the standard accounting practice for most service charges, with the exception of very small operations. This requires that costs be recognised in the accounts when incurred, not when the invoice is actually paid. This is the opposite of cash accounting, which recognises transactions only when there is an exchange of cash.
These are expenses incurred in a period for which no invoice has been received at the period end. As the cost relates to the period, it must be charged to the service charge account for that period.
The manager's costs in procuring services directly (in other words, not through a contractor) where the actual cost of the service (e.g. the site-management team) is recovered through the service charge. The administration charge is intended to reimburse the manager's indirect costs (e.g. payroll, staffing, etc.) and is recorded to the cost category where they are incurred, as would apply if the service(s) were contracted.
Alternative dispute resolution (ADR)
The collective description of methods used to resolve disputes other than through the normal judicial process.
The splitting of the costs of a service to assign them to a specific schedule or cost category.
The spreading of costs within schedules between occupiers who benefit from the services in that schedule, based on the availability, benefit and use of the services.
Arbitration is a procedure whereby two parties in a dispute agree to be bound by the decision of an independent third party (the arbitrator). The role of an arbitrator is similar to that of a judge, although the procedures are often less formal. An arbitrator is usually an expert in his/her own right.
The resulting difference between an individual tenant's apportionment of expenditure and the on-account service charges demanded from that tenant for any specific service charge accounting period, having regard to any service charge concessions that may have been granted.
All property that is not residential or agricultural and includes retail, office, industrial and leisure properties.
This is the type of law which binds parties to a contract (or lease) to meet the conditions of that contract (or lease). In this Code, where the word 'must' in the text is accompanied by a reference to 'contract law' in the margin, this indicates a provision common to most leases and therefore a 'contract law' requirement.
The 'cost' to the owner representing the measure of the wearing out, consumption or other reduction in life of an asset.
Any expenditure that is charged directly to individual occupiers and not funded via the on-account service charges.
RICS Dispute Resolution Service (DRS)
RICS DRS can provide a simple, fast and cost-effective approach to resolving disputes in the complicated world of property and construction, where disputes are bound to arise.
Early neutral evaluation (ENE)
ENE is an ADR technique. ENE is voluntary, confidential and conducted on a 'without prejudice' basis. The evaluation is non-binding, and aims to help clarify and define legal and factual issues in the dispute, identifying risks and likely outcomes before further significant resources are spent on the matter.
Gross internal area (GIA)
The area of a building measured to the internal face of the perimeter walls at each floor level in accordance with the RICS Code of Measuring Practice.
Independent expert determination
Independent expert determination in the UK and other territories is a process in which an independent third party, acting as an expert rather than as a judge or arbitrator, is appointed to decide a dispute (as an independent expert or 'expert determiner' – not to be confused with an 'expert witness').
Money or monies kept in a separately named account that is held in trust within the bank account of its owner.
International total occupancy cost code (ITOCC)
ITOCC from the Investment Property Databank (IPD) Occupiers Property Databank
(OPD) was designed to be the standard form of measuring property and facilities costs for all businesses and public sector organisations. It is prepared with the help of IPD occupier and other leading occupiers, consultants, accountants, service providers, developers and academics. As 'total' suggests, it takes account of all of the costs of occupancy, not just those in the common part(s).
The landlord is the person or organisation owning the freehold or superior leasehold interest in the property or scheme who has a defined legal relationship with the leaseholder governed by the lease and relevant legislation. The landlord may or may not be the manager. The landlord may also be called the 'lessor' or 'freeholder' but in this Code the term 'landlord' is used. The landlord may be a resident management company named in a lease or a Right to Manage Company that has acquired the statutory right to take over the landlord's management functions.
A written, witnessed, legal document that transfers from the landlord to the leaseholder the exclusive possession (i.e. the leasehold) of certain property for a fixed period of time (such as 99 or 125 years). The terms of the lease fix the rights of the landlord and leaseholder in respect of the property and cannot usually be changed without the agreement of all parties or an application to a tribunal or court for a variation. If a service charge, ground rent, or other charges are to be paid they must be provided for by the lease.
The person who in law has the right to exclusive possession of property under a lease. A leaseholder may also be called a 'lessee', 'owner', 'tenant', or 'service charge payer', but in this Code the term leaseholder is used exclusively. In retirement housing the leaseholder is usually the resident of the property. Sometimes, however, the son or daughter may take a lease of a property so that an elderly parent can live there.
The Leaseholders' Handbook is the document that contains essential information for purchasers and leaseholders of retirement housing.
The person or organisation having day-to-day control of the management of the retirement property, estate or development, is called the 'manager'. This person could be the landlord personally, a member of staff of a corporate landlord, a managing agent, a group of flat owners who have formed themselves into a formal management or maintenance company, or a statutory Right to Manage Company that has acquired the right to manage. Where the manager levies a charge for costs, overheads etc., it is called a management fee. (defined below) The manager is different to the "Scheme Manager", which is defined below. The manager is a person or organisation responsible for the provision of all the services under the lease. The "Scheme Manager" provides support to residents and assists in the management of the scheme, and is often called the warden or house manager.
A person or an organisation that is employed by a landlord, Residents' Management Company or Right to Manage Company to provide some or all management services required. A contract or agency agreement should be signed between the parties to set out the duties of the agent.
The managing agent's responsibility is to the landlord, Right to Manage Company, or Residents' Management Company, often referred to as the agent's client, and not directly to the individual lessees.
The management charge is the reasonable price for the total cost of managing the provision of the services at the location, and relates only to work carried out in managing and operating the services and administering the service charge.
The remuneration of the manager (including his profit element) for managing the services comprised in the service charge. Typically, this includes the supervision of the site team, overseeing the site contractors and the accounts work necessary to budget, forecast, manage, disperse, balance and apportion the service charge.
Specifically, these fees are not to include property management work separate from the service charge, such as owner approvals, income generation or rent collection.
Where the subject property/site-management team is not sufficiently large to justify specific service managers (for example, a Health and Safety manager or building surveyor) additional specialist fees may be charged to the relevant cost category for the 'manager provided' service.
Marketing and promotions
Advertising and other forms of promotion of a shopping centre intended to bring additional custom to the centre (as distinct from attractions and entertainments of a general amenity, benefit, service or attraction within the centre).
An array of costs set out in rows and columns, which is used as a system of methods and principles in the allocation and apportionment of costs between occupiers.
The generally accepted description of commercial mediation is a voluntary, nonbinding, private dispute resolution process in which a neutral person helps the parties to reach a negotiated settlement. A core principle of mediation is that the parties 'control' the outcome, rather than it being imposed on them.
Net internal area (NIA)
The usable area within a building measured to the internal face of the perimeter walls at each floor level in accordance with the RICS Code of Measuring Practice.
Not for profit
Descriptions of the service charge costs, which are not inflated for profit (although the individual services within the costs may contain a profit element for the individual supplier); but also, there is no residual loss (assuming a fully let property with no concessions on service costs to specific occupiers) left for the owner to pay.
A person in possession or occupation of premises and usually responsible for payment of the service charge to the owner.
On-account service charge
An estimated charge raised in advance and anticipation of the final service charge liability, calculated from the service charge budget.
The person who receives or is entitled to receive the rent. This person is usually responsible for the provision, management, and administration of the services and the service charge. In practice the owner may appoint a manager to discharge the owner's obligations under the terms of the lease.
Planned preventative maintenance (PPM)
PPM is maintenance that is performed purposely and regularly in order to keep the fabric, facilities, plant and equipment of a building in satisfactory operating condition by providing for systematic inspection, detection and correction of failures, either before they occur or before they develop into major defects. PPM also helps to identify the point at which such items can reasonably be deemed to have reached the end of their economic life, such that replacement or renewal may be necessary. PPM programmes are usually prepared to periods of between 5–10 years in advance, and is to be regularly reviewed and updated at frequent intervals.
Expenses paid in a given period that relate to the following period in whole or part.
An official estimate of the value of a property used as a basis of local taxation.
Rateable value is said to be the amount equal to the rent at which the property might reasonably be expected to be let from year to year if the occupier undertook to pay all of the usual occupier rates and taxes, and was also to bear the cost of repairs, insurance and other expenses (if any) necessary to maintain the property in a state to command that rent.
The upgrading of house or corporate style, logos, names badges, etc.
Recognised Tenants’ Association
There is also a legal term, Recognised Tenants' Association, which applies when a tenants' or residents' association successfully applies to the landlord, or a tribunal to become formally recognised. This confers extra rights which are set out in Chapter 11 of this Code.
Refurbishment is the renovation of fabric or equipment to bring it to a workable or better condition. It is often a different concept to repair or improvement, and usually includes elements of both. Where a refurbishment project includes improvements or enhancements beyond normal repair or maintenance, this element of the cost would usually be met by the owner.
This means a registered provider within the definition in the Housing and Regeneration Act 2008. Registered Providers include local authority and housing association landlords, and private registered providers (such as not-for-profit housing associations and some for-profit bodies), that are registered with the regulator for social housing providers in England.
Marketing to change the perception in the eyes of its target audience. This may be for letting purposes (an owner's cost), or may benefit both owner and occupier – for example, a shopping centre following refurbishment – in which case, an agreement is to be reached as to how the relaunch costs are split between the parties.
A fund created to ensure that sufficient money is available to pay for large items of expenditure in the scheme, rather than towards day-to-day, regular repairs, maintenance or management. Sometimes also called contingency or sinking funds or long term maintenance funds, the funds can only be used for the purpose for which they have been collected. Such funds are raised either by contributions from service charges where the leases allow this and sometimes by the operation of a formula in leases, which provides for a fixed amount to be paid on any sale of a relevant dwelling. These funds are subject to being held in trust in accordance with the Landlord and Tenant Act 1987.
The person who actually occupies the dwelling who may or may not be the leaseholder.
A group of tenants, leaseholders or occupiers with or without a formal constitution or corporate status is called a residents' association.
Residents’ Management Company (RMC)
The management of some long leasehold flats is run by companies whose members or shareholders are all or some of the leaseholders of those blocks. The leaseholders, or the board of directors appointed by the leaseholders, choose which managing agent to appoint and become the managing agent's client. Alternatively the leaseholders may manage the common parts themselves. These companies may or may not be the landlord or freeholder of the block. In many instances the freeholder delegates all the management responsibilities to an RMC under the terms of the lease, but keeps the freehold ownership of the block.
Right to Manage Company (RTMCo)
A particular type of Company formed by the leaseholders using a legal right to take over the management of their block of flats.
Housing that is purpose built or converted exclusively for sale for older people with a package of estate management services, and which consists of grouped, self-contained accommodation normally with additional services such as an emergency alarm, usually with communal facilities, and normally with a scheme manager. It is often called private sheltered housing or extra care housing.
The allocation of service charge costs into separate parts to reflect the provision, usage, benefit or availability of services between individuals or groups of occupiers.
Where the word 'services' is used, the reference includes works, such as maintenance and repair of the fabric and structure, and true services, such as the provision of heating, lighting, cleaning, security, etc.
An amount payable by a tenant or leaseholder as part of or in addition to rent for services, repairs, maintenance, improvements, insurance or the costs of management. The amount may be paid directly or indirectly, may vary according to the costs incurred or to be incurred, and is normally a proportion expressed in the lease of the total costs of running the scheme. Service charge and relevant costs for the purpose of the Landlord and Tenant Acts is defined in S.18 of the 1985 Act (as amended by S.150 and Schedule 9 to the Commonhold and Leasehold Reform Act 2002). Service charges can also be a fixed amount expressed in the lease. Where this is the case certain rights provided in the Landlord and Tenant Acts would not apply. If in any doubt advice should be sought. Service charges are subject to being held in trust in accordance with section 42 of the Landlord and Tenant Act 1987.
Service charge account
The service charge funds held for a specific property.
Service charge apportionment
The method and details of apportioning liability between tenants for contributing to a service charge.
Service charge reconciliation
A comprehensive comparison of all service charge income demanded against all service charge expenditure (including accruals and prepayments) for a given service charge accounting period. This enables the calculation of any balancing charges and credits due from tenants and/or landlords
A fund formed by periodically setting aside money for the replacement of a wasting asset, (for example, heating and air-conditioning plant and equipment, lifts, etc.)
Statement of service charge expenditure
The account of service charge expenditure/ costs and related notes. Commercial leases usually provide for an annual statement of service charge expenditure to be issued to occupiers following the end of each service charge period.
The term used for a group of retirement dwellings with a package of estate management services, also known as a development, estate or facility.
The person that provides support to residents, assists in the management of the scheme, and responds to emergency alarm calls. This person may also be called the warden, house manager, estate manager or resident secretary. The role may be a residential or non-residential one.
Tribunal means the First Tier Tribunal (Property Chamber).
The term 'tenant' is used in Landlord and Tenant legislation to describe any person (physical or legal) who owns the leasehold interest in property and is liable to pay the service charge under the terms of the lease. As with 'landlord', this term is only used when the context requires; references in the context of commercial property and service charges are to 'occupier', see above.
The share of the agreed service charge expenditure for any service charge accounting period that is attributable to vacant lettable accommodation.