Writing for Planning, Building & Construction Today, Chartered Surveyor, Jen Lemen BSc (Hons) FRICS of Property Elite, looks at the brand new RICS Professional Standard Service Charge Residential Management Code and Additional Advice for Landlords, Leaseholders and Agents (4th Edition).
The new RICS Residential Service Charge takes effect from 7 April 2026, updating the 3rd Edition, which was published in 2016 (10 years ago!).
The Code sits underneath the wider RICS Property Agency and Management Principles.
The specifics of the language used in the code
Where the Professional Standard uses the word ‘must’, this signifies a legal application, a breach of which could lead to civil and/or criminal action. The word ‘should’, in turn, indicates best practice. Where a departure from best practice is required, written justification should be documented.
It should be noted that the Code cannot override the terms of the lease, but it can provide best practices regarding the interpretation of the lease.
The Code applies to residential leasehold properties, including properties let on long leases, assured, assured shorthold (AST), contractual & regulated tenancies and licences to occupy, which are subject to a variable service charge.
Parties who need to comply with the Code include:
- Residential landlords
- Right to Manage (RTM) Companies
- Residents’ Management Companies (RMC)
- Residential property managers
- For-profit and not-for-profit private registered providers of social housing, i.e., housing associations
- Local authorities
Thus, a wide range of parties are affected by the Code – if you are involved in residential service charge management, then you must know about it.
Not all requirements apply to everyone
Housing associations are exempt from some statutory requirements, including Section 42 of the Landlord & Tenant Act 1987 (meaning that these providers must follow their own regulatory requirements relating to holding service charge monies, although reserve and sinking fund management must follow the requirements of the Professional Standard) and redress schemes (meaning that they must belong to the Housing Ombudsman Scheme).
Sections 6 and 7 of the Professional Standard do not apply to housing associations managing their own properties, but they do apply when a housing association manages property on behalf of a third party (e.g., through a partnership with a private developer in which a separate managing entity exists).
Similarly, local authorities are excluded from similar statutory requirements, including Section 42 of the Landlord & Tenant Act, the mandatory redress scheme (as per the above) and Section 25 of the Landlord & Tenant Act 1985 (meaning they are exempt from criminal sanction due to non-compliance with Sections 21-23 of the 1985 Act). The same principles as above relating to compliance with Sections 6 and 7 apply.
Moving on, the Code was published for a variety of reasons:
- To align with the requirements of the recent Building Safety Act 2022 and Leasehold & Freehold Reform Act 2024
- To add commentary on compliance with the Equality Act 2010 (including reasonable adjustments made by service providers), Data Protection Act 2018 (including the use of CCTV), anti-money laundering regulations, Fire Safety Act 2021 and Fire Safety (England) Regulations 2022
- To extend compliance to for-profit and not-for-profit private registered providers of social housing, i.e., housing associations
With these reasons in mind, the Code aims to:
- To improve best practice standards for the management of long leasehold residential property
- To ensure the timely release of relevant documentation
- To reduce disputes and provide guidance on dispute resolution
- To encourage planned preventative maintenance through costed capital expenditure plans and reserve funds (where permitted under the lease)
At its most basic level, landlords and managing agents should be able to demonstrate that they are competent, objective, and transparent when dealing with residential service charges.
Service charges should be run on a not-for-profit, not-for-loss basis, with services representing good value for money and procured through competitive quotations or benchmarking. Key considerations to take into account when procuring services under a service charge include:
- Age, location and occupancy of the property
- Management fee and level of services.
- Occupier expectations of service levels
- Cost effectiveness
- Efficiency
- Health & safety
- Service quality
- Reasonableness
- Statutory requirements
- Property condition
- Lease terms
- Transparency
The Professional Standard provides in-depth guidance on the management of residential servicecharges.
For this article, we have identified five of these, although we recommend digesting the whole document if you are actively managing residential property.
- Explanatory notes must be provided alongside service charge expenditure statements. This must explain any variances between the budget and reconciled figures
- New industry-standard cost classifications, reflecting those used in commercial service charge management, have been introduced. This facilitates comparison and benchmarking between different properties’ service charges
- All buildings should have a fully costed planned preventative maintenance (PPM) plan (read more here), reflecting the age and condition of the building. The level of contributions for any reserve or sinking fund should be directly linked to the PPM, ensuring that leaseholders are prepared for any major works.
- Any commission, remuneration or benefits received by a landlord or managing agent must be reported transparently. This could include insurance commission or remuneration for procuring utilities contracts.
- Costs relating to compliance with the Building Safety Act 2022 must be budgeted for, managed appropriately and reported transparently to residents. This includes fire safety requirements such as fire risk assessments and cladding remediation.
It’s also important to be aware that the UK and Welsh Governments have consulted on ‘permitted insurance fees for landlords, freeholders and property managing agents’.
Historically, landlords, freeholders and managing agents have often been paid commission for arranging insurance through insurance brokers. These costs are typically recharged as part of the overall insurance premium (i.e., with no transparency into the breakdown of costs) and do not relate to any tangible benefit provided by the freeholder or managing agent.
Section 59 of the Leasehold and Freehold Reform Act 2024 provides powers to ban this type of commission or remuneration, with the consultation aimed at exploring how new Regulations should implement the Act.
In particular, the consultation considered which insurance activities should be remunerable (or not) – such as claims handling or risk information sharing. Appropriate activities would be termed a ‘permitted insurance fee’, with the proviso that they must be separately charged, transparent, reasonable and proportionate.
Unsurprisingly, the consultation found a divide between leaseholders and landlords/agents. Leaseholders considered the existing system unfair and lacking transparency, although there was a split vote on whether a strict list of permitted activities was needed. Landlords & agents, in comparison, considered that they undertook significant work within the insurance chain and should be recompensed appropriately. They broadly stated that a list of permitted activities would not account for the varying degrees of complexity involved in arranging insurance.
In the coming months, we will see the impact of the new residential guidance on the market, including agents, landlords and tenants. Will it make a real difference to the transparency and value for money of service charges? Only time will tell.
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