Updated RICS Service Charge Code in 2026 for Residential Management

Service charges are an important financial mechanism in the UK property management industry for the administration and maintenance of shared spaces in residential and commercial properties. But the intricacy of such charges, without transparency and accountability, often leads to disagreements between leaseholders and managing agents.  In response to these difficulties, the Royal Institution of Chartered Surveyors introduced the RICS service charge code.

Although not legally binding, our team at Real Estate Agents London ensures that all service costs of our clients are taken care of in line with these best practices and professional standards.

What is the RICS Service Charge Code?

The RICS Service Charge Code is the property industry’s framework for setting out best practice in the management of service charges. It’s developed by the Royal Institution of Chartered Surveyors, which sets out how service charges should be managed, collected, and accounted for in both residential and commercial property.

Its major aim? 

• To guarantee service costs are transparent, fair and reasonable and fully accounted for
• Protect leaseholders’ rights and the long-term viability of building management.

This code aligns closely with statutory obligations under the: 

• Landlord and Tenant Act 1985
• Commonhold and Leasehold Reform Act 2002
• Leasehold Reform, Housing and Urban Development Act 1993.

What Is RICS Service Code Applicable To?

It applies primarily to leasehold properties but also includes principles relevant to commonhold and shared ownership arrangements.

The exact standards vary by property type, with RICS having several codes:

Commercial Property: For commercial and mixed-use properties, the global RICS standard is applied rigorously. It guarantees full openness in lease management for both landlords and tenants.

Refer to the RICS Service Charges in Commercial Property Guidance for rules specific to leases and apportionment across commercial real estate.

Residential Management: Management Code specifies criteria for long leasehold and freehold homes. It gives important guidance on leaseholder consultation and compliance with building safety requirements.

Access the complete RICS Service Charge Residential Management Code to understand requirements regarding consultations and leaseholder rights.

Who needs to follow the RICS Code?

Members of RICS are also bound by the Code as part of their Code of Professional Conduct.

Is the RICS Service Charge Code a legal requirement?

Yes, both codes are required for RICS members and regulated firms. This means that chartered surveyors, managing agents and other RICS-regulated professionals must observe the code as a condition of their membership.

The 4th Edition goes a step further for the residential code. It has been upgraded from an advisory note to a full professional standard. The code is now mandatory and can be utilised in courts and tribunals as evidence

The commercial code’s 2nd Edition establishes eight mandatory minimum performance standards that all RICS members are required to meet.

If a RICS member fails to comply, This is not merely about a court viewing the member’s conduct unfavourably. If you do not comply, RICS can itself take formal disciplinary action.

Principles of RICS Service Charge Code

Members and regulated firms of RICS are required to observe some basic principles that underpin the Code. They emphasise transparency, fairness, timeliness and financial accuracy in the management of residential and commercial properties.

Transparency in Financial Reporting

Leaseholders should be aware of how and where their money is being spent. The law requires that all income and service charges be calculated transparently and reported to owners. 

Leaseholders must receive complete annual accounts or statements within four months after the end of the financial year, which show:

• Service charge income
• Repairs, maintenance, insurance and utilities expenditure
• Movements in the reserve fund
• Any excess or shortage
• Any surplus or deficit

Fairness and Reasonableness

The costs must be apportioned fairly and reasonably between the several tenants or units and clearly defined within the lease. In case of big works, expenditures must be justified, not inflated by excessive fees or commissions by managing agents.  If they charge too much for trivial works or charge for non-existent services, this can lead to legal disputes or damage to reputation.

Managers must buy products and services competitively and provide services of an appropriate standard that provide fair value to the payers.

Settlement of Disputes

Managers are responsible for proactively reducing the sources of disagreements. Where there is disagreement, the code outlines clear alternative dispute resolution (ADR) frameworks. It also encourages mediation before legal proceedings are initiated.

Full Cost Recovery / Not For Profit

This code also highlights that charges must be based on actual costs of providing services and must be reasonable. Service charges must not be used to make a profit for landlords.

Correct Reserve Fund Management

A key part of this code is to develop long-term financial resiliency. A reserve fund should be established and reviewed periodically, with contributions set based on a planned preventative maintenance assessment of anticipated future costs.

RICS recommends that reserve funds be set at a level sufficient to cover foreseeable major expenditure over a 10-year horizon, based on a professional building condition survey.

Compliance with Legal Requirements

Code is an addition to existing laws, and it helps to avoid violations. Not following the code does not mean you have breached the law. But courts treat this non-compliance as unreasonable behaviour.

Account Segregation and Interest

Service charge funds collected in advance shall be maintained in a separate or virtual account. They cannot be mixed with a landlord’s or managing agent’s general funds.

Any interest earned on these held funds must be credited back to the service charge account. This means leaseholders and tenants benefit from the interest on their own money, rather than it being absorbed by the managing party. This guideline prevents the misuse of funds and increases the financial transparency between all stakeholders.

Commission and Rebate Disclosure

Any commission, rebate, or financial benefit that a management agent or landlord receives in connection with placing or managing insurance must be declared annually to leaseholders. However, the declaration must be transparent and clearly show how the commission is proportionate to the services provided.

The Leasehold and Freehold Reform Act 2024 proposes a future ban on insurance commissions being part of service charges. Agents and landlords managing property should be preparing for this transition today, even though secondary legislation confirming the details has yet to be seen.

What Changed in the 2nd Edition of the Commercial Code?

The 2nd Edition of the RICS Service Charges in Commercial Property standard was released on June 25, 2025 and came into force on 31 December 2025.  This updates the 2018 edition and introduces the most substantial improvements to commercial service charge governance since 2018.

This update is not merely a refresh.  It includes stricter restrictions, clearer timeframes and better protections for tenants of commercial and mixed-use buildings.

1. Mandatory budget timescale: Budgets must be issued at least 1 month before the service charge year starts.
2. Annual accounts deadline: Approved accounts must be delivered to tenants within 4 months of the year-end.
3. Fixed management fees: Percentage-based fees are no longer acceptable. Management fees must be determined year by year.
4. Separate Accounts: Advance payments must be held in separate or virtual accounts.
5. Interest crediting: Any interest earned on held funds must be credited back into the service charge account.
6. Commission disclosure: All commissions and rebates must be stated in advance.
7. Cost classification: All expenses will be in accordance with the Industry Standard Cost Classifications.

Why Fixed Management Fees Matter

Some managing agents took a percentage of the overall service charge costs as their fee under the former approach. This meant that as expenditures went up, their income went up automatically, with no more work on their part. The 2nd Edition has put an end to that practice. 

Fees must now be fixed, agreed in advance, and subject to review or indexation.  This protects tenants from fee inflation out of their control.

What Happens If Deadlines Are Missed?

Failure to meet the budget or year-end accounting deadline is not in itself a breach, but managers need to be able to explain clearly and promptly the reason for any delay.

RICS Residential Management Code 4th Edition: What Changed in 2026?

Management Code came into effect on 7 April 2026.  This is the first substantial revision to the residential code in a decade, replacing the 3rd Edition, which has been in effect since 2016.

The Secretary of State approved this edition, and it applies to residential leasehold properties in England. It is recommended to be followed as best practice by practitioners in other areas of the UK.

Most of the changes came from two laws:

• Building Safety Act 2022: New standards for higher-risk buildings and fire safety
• Leasehold and Freehold Reform Act 2024 (LAFRA 2024): Reforms to leaseholder protections and charges

5 Key Updates in the 4th Edition

A brand new section on Building Safety

Section 9 is brand new. It includes higher risk buildings (usually 18 metres or more, or 7+ storeys), duties of accountable persons, liabilities of residents and owners and the leaseholder safeguards regime under the Building Safety Act 2022.

Social housing providers are now included

For the first time, registered social housing providers fall under the scope of crucial elements of the code.  This is particularly true of mixed-tenure developments where social and private leaseholders live side-by-side in the same building.

Added fire safety compliance guidelines

The code now includes detailed commentary on the Fire Safety Act 2021 and the Fire Safety (England) Regulations 2022. It is for managing agents to consider these in their day-to-day management strategy.

Insurance commission transparency increases

Insurance commissions earned by landlords or managing agents must be declared annually to leaseholders.  They have to be transparent and proportionate. LAFRA 2024 has also announced a future prohibition on insurance commissions in service costs, but the secondary law has not yet been implemented.

Other areas of compliance addressed

The 4th Edition now incorporates guidance on the Equality Act 2010, the Data Protection Act 2018 (including usage of CCTV) and anti-money laundering rules. These were not part of prior editions.

How to Implement the RICS Service Charge Code in Practice

How you will meet the requirements of the revised codes will depend on your position. Here is a helpful summary for each side.

For Managing Agents

• Align current financial reporting processes with 2nd Edition (commercial) or 4th Edition (residential) standards
• Check that you can issue budgets at least one month before each service charge year begins 
• Ensure that year-end accounts are capable of being produced and delivered within four months of year-end
• If you’re charging percentage-based management fees now, switch to fixed fees
• Set up separate or virtual accounts for service charge advance payments 
• Revamp your insurance commission disclosure process so that annual declarations are sent to leaseholders
• Train all workers involved in service charge management on the new timelines and reporting criteria

For Landlords and Freeholders

• Confirm that your managing agent is working to the latest code
• Approve budgets on time. Issue budgets within the mandatory timescale
• If you own or manage a higher risk building, consider your responsibilities under the Building Safety Act 2022 as outlined in section 9 of the residential 4th Edition
• Inform tenants of any anticipated departures from the normal service charge practice before the start of the year, and not during or after

For Leaseholders and Tenants

• You now have a right to get the budget at least one month before the beginning of your service fee year. If you are not receiving this, raise it with your managing agency
• Your year end accounts should be with you within four months of the end of the financial year
• Any insurance commissions being charged must be disclosed to you annually. If they’re not this is a compliance problem worth raising
• Use the code as a benchmark while you are examining your accounts, or if you are disputing any charges that seem unfair

How Does the RICS Service Charge Code Affect Lease Negotiations?

The RICS code is not simply for when a lease is signed. It plays an increasing role in the negotiation, drafting and review of leases.

Solicitors and advisers on both sides now use the code as a reference point when agreeing service charge provisions.  Even if the clause is theoretically legitimate, a lease that is structured in conflict with the code may generate problems later on.

What This Means During Negotiations:

• Any variations from conventional code practice should be flagged up by landlords upfront, before heads of terms are accepted
• Budgets and reconciliation information are provided to tenants earlier in the process, making it easier for tenants to estimate expenses
• Both parties should ensure the lease provides for compliance with the current edition of the code. Earlier contracts may reference earlier standards.

For Existing Leases:

If your current lease was drafted before December 2025 (commercial) or before April 2026 (residential), it may not reflect the increased criteria.  This doesn’t mean the code stops applying. Members of RICS dealing with service charges under earlier leases are expected to follow the current version where appropriate.

Final Verdict: Why is RICS Service Charge Code Important?

The RICS service charge code of practice is not simply a guideline. In reality, it’s a must-have tool to develop trust, avoid conflict and maintain sustainable property management. Its main elements can be adopted by stakeholders to:

• Improve the tenant experience 
• Protect value of assets
• Demonstrate professionalism and ethics 
• Prevent costly legal disputes 

This code will ensure transparency, fairness and sustainability of service costs. If you’re a leaseholder worried about your property or service charges, looking at this code or employing an asset management team is an important step in good governance and peace of mind.

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