Percentage Fees: Don’t be stung!

Surveyor Fees are an issue that have long been debated within the property industry. RICS fee scales, once relied on by members to set their professional rates, are now a distant memory and, despite surveyors having been freely negotiating their fees with clients for more than two decades; the question of how those fees are charged remains.

Rather than charging the usual time-based rates with fees established at the outset for a project or service, some situations call for a different charging structure: in some cases, a ‘finders fee’ or working on a contingency or percentage fee basis is considered more appropriate. This practice has been the norm for many years in areas such as commercial and residential agency.

Surveyors working in property management have historically set their fees on a similar basis. However, RICS Service Charge Codes for both commercial and residential property, has meant the RICS has made moves to outlaw the practice of percentage fees for managing agents. The codes recommend that fees are set on a fixed price basis rather than being calculated as a percentage of expenditure.

Like agents, a large proportion of surveyors offering dilapidations advice previously worked on a percentage fee basis, despite the RICS not particularly being in favour of this. With the advent of the Civil Procedure Rules (CPR) which governs the resolution of dilapidations disputes and the introduction of the Dilapidations Protocol, whether or not such fees are acceptable or even appropriate in dilapidations practice has become a hotly debated topic.

When offering dilapidations advice to tenants, it is frequently the case that the surveyor who achieves a profitable outcome for his or her client will be paid a percentage of the sum that is achieved. A contingency-based fee arrangement is well suited to the tenants’ position in a dilapidations claim because where there is a clear difference between the claim and the settlement, it is a simple matter for the client to calculate what he has gained and pay the surveyor an agreed percentage. The argument goes like this. The client receives appropriate advice, wins the claim, pays the surveyor accordingly for a job well done and everyone is happy. Those who are against contingency fees being paid to surveyors often put forward the argument that being remunerated in such a way increases the temptation to escalate claims in order to increase the fee that could be earned as a result. However, any chartered surveyor worth his salt – and his RICS membership – is unlikely to risk his reputation by putting him or herself in this position. There is little evidence in the market that this is common practice and it is generally only when a claim is disputed that problems may arise.

The commonly held view is that, when a professional adviser provides his or her advice on a dilapidations claim, it is simply the standard service for which the client is paying. In this situation the surveyor is acting as an ‘advocate’ rather than an ‘expert’ and taking a percentage fee is fine. However this only applies to pre-litigation advice. Should the case go to court and the surveyor be called as an expert witness, then contingency fees are no longer acceptable due to the fact that the surveyor is being paid by one of the parties to the case and his or her evidence cannot be considered by the court to be unbiased. Clients need to be aware that if they are paying their surveyor a percentage fee, they may not be regarded by the court as a credible witness and the claim could be jeopardised as a result.

Rather than spelling out to members whether or not contingency fees are acceptable, the RICS have chosen to sit firmly on the fence and simply says that the question of how pre-litigation fees are to be charged is “a matter of contractual agreement between surveyors and their client”.

So ultimately it is up to the profession to make up its own mind how to charge clients for the work it undertakes on their behalf. The most important aspect of all this is that surveyors taking a percentage fee from clients for providing dilapidations advice must appreciate that if they are then called upon to act as expert witnesses, their evidence is likely to be examined more critically and they must ensure it is watertight. Incentive-based fee arrangements are not outlawed by the dilapidations protocol but the surveyor must inform all parties of the basis on which fees are being paid and ensure that clients are aware of the implications should a dispute end up in court. Clients should also appreciate that in this situation, the Judge may call into question the legitimacy of a claim prepared by a surveyor being remunerated on a percentage fee basis.

For further information regarding this subject. please contact David Jay.