RICS Service Charge Code: What the second edition means for commercial property professionals

Earlier this year, the Royal Institution of Chartered Surveyors (RICS) released the second edition of its Service Charges in Commercial Property professional standard. Effective from 31 December 2025, this update replaces the 2018 edition and reflects the industry's evolving expectations around transparency, fairness, and operational rigour.

One of the most successful pieces of guidance issued by RICS, its Service Charge Code is embedded across the industry. While not legally binding, the Code carries significant weight - it sets a benchmark for what is considered reasonable and professional in service charge management, providing a reference point in both lease negotiation and dispute resolution; as a result, it is a vital reference point for landlords, occupiers, and advisors alike.

Key Updates: Raising the Bar

The second edition introduces a series of mandatory requirements and best practice recommendations that RICS members and regulated firms must follow. Among the most notable changes:

• Timeliness & Accountability: Budgets must be issued at least one month before the service charge year begins, and year-end accounts delivered within four months of its close. If deadlines cannot be met, a clear explanation is required - no more vague delays.
• Fixed Management Fees: Percentage-based fees are out. Management fees should be fixed annually, subject to review or indexation. Importantly, these fees should only cover service charge administration, not rent collection or other landlord duties.
• Financial Controls: Service charge funds must be held in discrete bank accounts, with any interest credited back. Only actual, properly incurred costs are recoverable - landlords cannot profit from service provision.
• Transparency in Apportionment: A detailed apportionment matrix is now required, showing how costs are calculated and allocated. This is a major step toward demystifying service charge budgets for tenants.
• Income Disclosure: All income sources, including insurance commissions and procurement rebates, must be disclosed. Tenants should benefit from any discounts or performance-linked rebates in full.
• Sustainability & Safety: ESG-related costs are now addressed, and the Code clarifies that defect-related expenses under the Building Safety Act 2022 are non-recoverable. Enhancements to building fabric or equipment may be included, provided they are agreed with tenants and supported by a cost-benefit analysis.
• Metering & Cost Allocation: Installing additional meters to improve cost apportionment is now considered legitimate service charge expenditure, if it benefits some or all tenants.
• Dispute Resolution: The Code encourages Alternative Dispute Resolution (ADR) and clarifies the ‘pay now, argue later’ principle, which aligns with the Supreme Court’s decision in Sara & Hossein Holdings Ltd v Blacks Outdoor Retail Ltd (see our previous update on this case here).

Implications

For landlords and property managers, the new standard demands enhanced operational discipline. Systems may need upgrading to meet reporting and disclosure requirements. While this may increase administrative burden, it also promises fewer disputes and stronger tenant relationships.

For occupiers, the changes offer greater protection and financial clarity. Predictable budgeting, transparent documentation, and fairer cost allocation are all welcome developments. The exclusion of landlord-specific costs, such as void unit expenses. ensures tenants aren’t unfairly charged.

Preparing for Compliance

The second edition of Service Charges in Commercial Property marks a significant step forward in service charge management. By setting a minimum acceptable standard of performance, RICS is helping to foster trust, reduce disputes, and align industry practices with modern expectations.

With the 31 December 2025 deadline approaching, now is the time to act. Landlords and occupiers should review lease terms for alignment with the new Code, update internal procedures and financial systems as necessary and engage with property managers to ensure readiness.