Hot Topic Highlight – RICS Professional Standard Service Charges in Commercial Property (2nd Edition)

Jen Lemen
Aug 19
6 min read

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What is this blog about?

In this week’s blog, we look at the new RICS Professional Standard Service Charges in Commercial Property (2^nd Edition). This is essential knowledge for all RICS APC candidates with the Property Management (Commercial) competency.

This supersedes the former 1^st Edition (which became effective in April 2019) with changes to promote best practice, consistency, reasonableness and transparency in relation to this area of practice.

The 1^st Edition was one of the most downloaded RICS guidance documents, proving it’s popularity and success in setting best practice standards for service charge management.

You can read the full Professional Standard and supporting documents on the RICS website.

Thanks go to Charles Watson FRICS, Associate Director at Avison Young, for his input into this article. You can read his summary of the guidance here.

Don't forget, if you want to learn more about the changes, Charles is hosting a webinar on 7th October 2025. Just click on the image below to book:

Who is the guidance aimed at?

Managers, management companies and occupiers of commercial property in the UK, e.g., multi-let office blocks, shopping centres and industrial estates with common areas.

When is the guidance effective from?

31 December 2025.

What are the key aims of the new guidance?

To improve best practice, consistency, reasonableness and transparency in service charge management
To ensure that budgets and year-end certificates are issued on time
To reduce the risk of disputes and provide guidance on dispute resolution
To provide guidance on service charge clauses in commercial lease for various stakeholders, including solicitors, clients and property managers

What is the status of the new guidance?

As a Professional Standard, it provides mandatory requirements (‘must’) and best practice recommendations (‘should’).

In exceptional circumstances where a departure from the guidance is required, this should be clearly documented and justified in writing. This may be because of existing lease terms, which take precedence over the Professional Standard requirement. If the existing lease is silent, unclear or ambiguous, then the service charge should be administered in line with the guidance of the Professional Standard.

If a RICS Member becomes aware of non-compliance with the Professional Standard, then they are expected under RICS Bye-Law B5.2.1 (c) to report this to RICS Regulation.

How is the new guidance structured?

There are four key sections of the new guidance:

1 – Introduction – explaining how service charges work, the interaction of service charges with existing lease terms, the principle of proportionality and interaction with the ICAEW guidance.
2 – Mandatory requirements
3 – Core principles
4 – Best practice to support the core principles

There are three appendices and a glossary of terms:

Appendix A – Standard industry cost classifications
Appendix B – Service charge accounting sample report
Appendix C – Commercial property service charge handover procedures

The wider RICS website also provides three downloadable agreement templates:

Template 1 - to retain monies included in a budget and already collected but where work has been deferred until a subsequent service charge period.
Template 2 - to forward fund the cost of future works
Template 3 - to defer the recovery of costs incurred by the landlord over future periods, known as a payment plan

What are some of the key changes in the new guidance?

Here is a brief summary of some of the key changes in the new guidance…

2 – Mandatory requirements

There are eight mandatory requirements that you can read in full on page 6 of the Professional Standard.

These set out the minimum acceptable performance standards for the management of service charges. Areas covered include the principle of 100% recovery of the proper and actual costs (‘not for profit, not for loss’) and provision of a service charge apportionment matrix.

One key change is that time limits are now mandatory (requirement 3).

If in exceptional circumstances there is a delay in provision of the budget (less than one month prior to the start of the service charge year) or service charge year end accounts (more than four months after the service charge year end), then a timely written explanation must be provided and the documentation subsequently issued.

Another key change relates to not withholding service charge monies which have been correctly demanded (requirement 7), unless the issue relates to a simple mathematical or computational error. This stems from the Supreme Court case of Sara & Hossein Asset Holdings Ltd (a company incorporated in the British Virgin Islands) (Respondent) v Blacks Outdoor Retail Ltd (Appellant).

3 – Core principles and 4 – Best practice to support the core principles

There are a myriad of key changes in these two sections:

The property manager should sign off the year end accounts to confirm that they provide a true and accurate reflection of the actual costs and services provided
Management fees should only relate to management and administration of the service charge, not any additional charges, such as those relating to asset management
Any discounted insurance premiums should be passed on in full, e.g., where a group contract is arranged, and any incentives received by a property manager for arranged insurance should be disclosed
Energy costs under the Heat Network (Metering and Billing) Regulations 2014 should be invoiced separately, whilst the cost of maintenance and repair of related equipment should be dealt with under the service charge where permitted by the leases
An apportionment matrix showing the basis and method of apportionment must be provided
Guidance on the Building Safety Act 2022 and estate charges for large mixed-use schemes has been included
A balance sheet or cash reconciliation should be included alongside the statement of actual expenditure
The standard industry cost classifications have been refined, e.g., splitting up repair and maintenance
New guidance around handover procedures after a change of landlord or property manager has been added in
Dispute resolution guidance has been added in, following the Sara & Hossein Asset Holdings Ltd case referred to above
Guidance on provision for anticipated future expenditure has been added in, together with three key templates
Guidance on ESG has been updated, including recovery of costs for improving environmental performance of the property
A schedule of material accruals must be provided going forward

What should I do as a property manager in light of the new guidance?

Property managers MUST be familiar with the new guidance and be able to apply this to service charges from December 2025 onwards.

A failure to do so could be deemed as professionally negligent.

Property Elite will be hosting an update webinar on the new Professional Statement in Autumn 2025, preparing you for the changes in 2026 onwards.

What’s next?

In Charles’ words, ‘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 can we help?

Come and join our CPD webinar to learn more about the changes.

CPD Webinar - RICS Professional Standard Service Charges in Commercial Property

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