RICS Professional Standard Service Charge Residential Management Code (4th Edition)
- Apr 14
- 6 min read
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What is this blog about?
In this week’s blog, we look at the brand new RICS Professional Standard Service Charge Residential Management Code and Additional Advice for Landlords, Leaseholders and Agents (4th Edition).
This takes effect from 7 April 2026 and updates the 3rd Edition, which was published in 2016 (10 years ago!).
The Code sits underneath the wider RICS Property Agency and Management Principles, which you can read about in this blog article.
The new Professional Standard is essential reading for all Chartered Surveyors and RICS APC & AssocRICS candidates involved in residential property and block management.
You can download the full Professional Standard on the RICS website.
Why has new guidance been published?
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
You can find a more comprehensive summary of all of the changes here.
We have already published blogs on the changes made by the Building Safety Act 2022 and Leasehold & Freehold Reform Act 2024.
Who does the guidance apply to?
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
Landlords and managing agents should be able to demonstrate that they are competent, objective and transparent when dealing with residential service charges.
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 if the housing association is managing property on behalf of a third party (e.g., through a partnership with a private developer where 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.
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 CAN NOT override the terms of the lease, but it can provide best practice in relation to the interpretation of the lease.
What is the aim of the Professional Standard?
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)
What are some of the general principles of good service charge management?
Not for profit, not for loss
Services should represent good value for money and procured through competitive quotations or benchmarking. Note that this does not always mean the lowest cost
All costs and scopes of service should be transparently communicated
The apportionment basis should be prescribed in the lease, although if it is not, it should be fair, reasonable and proportionate
A management agreement should clearly document the managing agent’s fees and service provision
What needs to be considered when procuring services under a service charge?
Services need to be relevant, taking into account the age, location and occupancy of the property, management fee and level of services.
Other specific considerations include:
Occupier expectations of service levels
Cost effectiveness
Efficiency
Health & safety
Service quality
Reasonableness
Statutory requirements
Property condition
Lease terms
Transparency
What are some of the key procedural requirements in the Professional Standard?
The Professional Standard provides in-depth guidance on the management of residential service charges. For this blog, we have pulled out five of these – although we recommend digesting the whole document if you are actively managing residential property.
1. Explanatory notes must be provided alongside service charge expenditure statements. This must explain any variances between the budget and reconciled figures
2. 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
3. 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.
4. 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.
5. 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.
What else should I be aware of?
The UK and Welsh Government 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., lacking transparency over 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 aiming to explore 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 take into account the varying degrees of complexity involved in arranging insurance.
In conclusion…
If you are involved in managing residential property with a service charge, you MUST know the detail of the new guidance.
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N.b. Nothing in this article constitutes legal, professional or financial advice.