The RICS Service Charge Code (2nd Edition): What’s New, Why It Matters, And How It Impacts You
The Royal Institution of Chartered Surveyors (RICS) recently released an important update to its influential Service Charges In Commercial Property Professional Standard – commonly referred to as “The Code” – which comes into effect on 31 December 2025.
As a commercial property owner or manager, it’s vital you understand these updates, their practical implications, and how your tenants will perceive them.
Key Changes And Practical Implications
1. Mandatory Standards For All RICS Professionals
All RICS-accredited firms must comply fully with the new Code.
What This Means For You:
- Increased assurance that your service charge management meets industry-recognised standards.
- Greater tenant confidence, reducing potential for disputes.
2. Enhanced Financial Transparency
Property managers must formally certify year-end accounts and provide an independent review (audit or accountant’s report), clearly showing how costs are apportioned.
Practical Impact For You:
- Increased accountability and paperwork, but significantly reduced likelihood of tenant disputes about fairness or accuracy.
- Managers must provide detailed cost breakdowns proactively, not just when asked.
Example scenario:
If you manage a multi-let office building, tenants will expect clearer evidence of how common-area maintenance or plant maintenance costs are shared fairly according to actual usage or floor space.
3. Improved Communication With Tenants
Regular tenant meetings and proactive sharing of documentation are now essential.
Practical Impact For You:
- More frequent tenant engagement, which although slightly more intensive, can enhance tenant satisfaction and retention.
Example scenario:
For retail tenants in shopping centres, proactive communication ensures fewer misunderstandings about marketing or security service costs, promoting stronger long-term tenant relationships.
4. Encouragement Of Alternative Dispute Resolution (ADR)
The Code strongly encourages including Alternative Dispute Resolution clauses in leases, or proactively using ADR if disputes arise.
Practical Impact For You:
- Far lower costs and quicker resolution times if disputes do occur, preserving tenant-landlord relationships.
Example scenario:
Rather than immediately escalating a service charge dispute to court, both landlord and tenant agree to independent mediation, significantly reducing legal fees and resolution time.
5. More Rigorous Procurement Reviews
Service contracts must now undergo formal competitive tendering or benchmarking at least every three years.
Practical Impact For You:
- Initially more administrative work, but longer-term benefits from improved cost efficiencies and service quality.
Example scenario:
Regular tendering of cleaning or security contracts can reveal cost savings or quality improvements, directly benefiting your tenants and ultimately your property’s market appeal.
6. Clarification Of Improvement Costs
Improvements or enhancements are typically excluded from recoverable service charges unless demonstrable tenant benefit is clearly documented.
Practical Impact For You:
- If planning major improvements, you must clearly demonstrate benefits to tenants (cost efficiency, sustainability, compliance, etc.) before including them in service charges.
Example scenario:
Replacing outdated lighting with energy-efficient systems may be recoverable if clear savings and long-term tenant benefits are documented and transparently communicated.
7. Strengthened Governance: No Landlord Profits
Service charges must only cover genuine, incurred costs plus a clearly stated reasonable management fee.
Practical Impact For You:
- Clearer justification for fees, preventing misunderstandings about profit from tenants.
8. Sinking And Reserve Funds Transparency
Funds collected for future works must be securely held in separate trust accounts.
Practical Impact For You:
- Enhanced tenant confidence in the security and transparency of long-term maintenance funds.
9. Regulatory Alignment
You must comply fully with updated laws:
- Building Safety Act 2022: Prohibiting recovery of remediation (e.g., cladding replacement) from tenants.
- Heat Network Regulations: Accurate usage-based billing now mandatory.
Practical Impact For You:
- Potential compliance costs, but greater transparency and fewer disputes around significant regulatory-related costs.
How Kemsley Can Support You:
Our dedicated Property Management Team, led by Director Tom Kinloch, can ensure a seamless transition to the updated RICS Service Charge Code. We will:
- Audit your current service charge approach, ensuring full compliance.
- Provide clear and practical guidance on implementing changes.
- Proactively communicate with your tenants, ensuring they understand and appreciate the new transparency and fairness of your service charges.
Tom Kinloch comments:
“These changes will significantly improve landlord-tenant relationships by promoting fairness, transparency, and trust. At Kemsley LLP, we’re committed to ensuring your compliance is seamless and enhances your long-term property strategy. We’ll provide practical advice tailored specifically to your properties, helping you navigate these new standards with confidence.”
Disclaimer: This guide provides general insights only; please contact Kemsley LLP for tailored advice.
