RICS service charge code: What’s changed and what does it mean for you?
On 25 June 2025, the Royal Institution of Chartered Surveyors (RICS) published the Second Edition of its Service Charges in Commercial Property Professional Standard, better known in the industry as The Code.
This marks the seventh iteration of what has become the go-to guidance on best practice in commercial property service charge management. It applies to property managers, landlords, tenants, and stakeholders across the UK – and reflects a wider push for fairer, more transparent, and more consistent practices in how service charges are administered.
Avison Young took part in the 2024 consultation process and has reviewed the final document in full. While the Code is not legally binding and cannot override the terms of a lease, it does set the standard for good practice and may be referred to in court or dispute resolution as a benchmark for reasonableness.
Key changes in the 2025 edition
There are many detailed updates in the Second Edition, but here, we’ve summarised the most important changes, what they mean in practice, and what to expect next:
1. Stronger emphasis on transparency and financial accountability
Managers must now sign off year-end service charge accounts with a formal statement confirming actual costs incurred.
These accounts should be backed by independent reviews, following the requirements set by the Institute of Chartered Accountants in England and Wales.
Managers must clearly outline the allocation and apportionment of costs to tenants. This includes written documentation on the calculation basis. The guidance recommends floor area-based apportionment as standard and advises against using rateable values.
2. Better tenant communication and engagement
Property managers are expected to proactively engage tenants through regular meetings, providing clear points of contact, and responding promptly to queries.
If tenants request it, managers should share supporting documentation, including copy invoices to back up service charge figures.
Managers are required to explain any delays in issuing budgets or accounts, and while this doesn’t remove their obligation to deliver them, it reinforces the importance of timely communication.
3. Encouraging dispute resolution, not court action
The updated Code encourages all new leases to include an Alternative Dispute Resolution (ADR) clause.
Even where a lease doesn’t include such a provision, parties are strongly urged to agree to ADR as an alternative to court proceedings.
Tenants withholding payment must now justify the reasons and clearly explain how withheld amounts are calculated, discouraging arbitrary deductions.
4. More rigorous procurement and value for money checks
Property managers are expected to keep services under review to demonstrate value for money and service quality.
Where practical and cost-effective, competitive quotes should be obtained for services.
Contract reviews should take place at least every three years to ensure pricing and performance remain appropriate.
5. Clarified rules on improvement and enhancement works
As a general rule, improvement or enhancement works are not recoverable under service charges.
However, if landlords can show that the work offers cost-benefit value to tenants that outweighs lease restrictions, there may be grounds for inclusion – provided sufficient evidence is shared.
This introduces more nuance around lease interpretation and negotiation, particularly where improvement works are necessary for long-term asset management.
6. Reinforced standards around governance and team management
Managers and those involved in service charge administration must act with professional care, diligence, integrity and objectivity.
The Code also offers clearer expectations on internal team management, staffing, and how to handle management charges, ensuring standards are consistently met.
7. Sinking funds and trust accounts
Sinking and reserve funds (or depreciation charges) must be held in one or more discrete bank accounts and maintained ‘in trust’ for tenants.
This supports longer-term planning for capital expenditure while maintaining clarity around tenant entitlements.
8. Heat networks and building safety regulations
The Code references two key regulatory frameworks:
The Building Safety Act 2022: Prohibits landlords from passing on remediation costs (e.g., cladding replacement) to leaseholders, including commercial tenants in affected buildings over 11m or five storeys.
The Heat Network (Metering and Billing) Regulations (2014 & 2020): Requires landlords who supply heating or cooling from a central system to install meters, bill tenants based on actual usage, and issue bills quarterly (electronically) or six-monthly (otherwise).
What’s next?
The revised Code won’t be the final word on service charge best practice. As legislation continues to evolve, particularly in areas like building safety, sustainability, and energy efficiency, we can expect further updates in future editions.
In the meantime, the Second Edition offers much-needed clarity in key areas, particularly around financial transparency, tenant communication, and professional standards. However, it’s important to remember:
The Code does not override lease terms, and service charge disputes may still arise where provisions are ambiguous or silent.
It does not override sale contract terms, although Appendix 1 offers helpful guidance for landlords, tenants and solicitors during transactions.
How Avison Young can help
Avison Young’s REFIM (Real Estate Finance & Investment Management) team has extensive experience in advising landlords on service charge matters, ensuring you stay compliant with the Code, while protecting your position under existing leases.
For more guidance or a tailored review of your current service charge approach, get in touch with our team.
