RICS 2025 Service Charge Code Update

The RICS Service Charges in Commercial Property (Second Edition) takes effect from 31 December 2025 as a mandatory professional standard. The updated Code strengthens principles of fairness, transparency, and accountability in the management of commercial property service charges, while introducing new provisions around ESG, dispute resolution, and financial governance.

This summary outlines the key changes and practical implications, which include a stronger emphasis on:

•    quarterly budget updates
•    the benchmarking of costs 
•    mandatory digital access to service charge data. 
•    It also incorporates ESG principles and provides clearer guidance on issues like insurance commission      and the recovery of sustainability-related costs. 

Key updates in the 2025 Code:

Stronger financial controls: Landlords can only recover 100% of proper and actual costs. Landlords are not allowed to profit from service provision beyond reasonable management fees. 

Digital access: Mandates digital access to service charge data for greater transparency, while ensuring all tenants receive the necessary information. Property managers are also expected to provide supporting documents, such as copy invoices, upon request.

ESG integration (environmental, social, and governance (ESG) factors into business and investment analysis and decision-making.) 
Requires landlords to factor sustainability into operational decisions and report on it, though it stops short of setting minimum environmental standards. 

Sustainability costs: Provides more guidance on how to justify including energy efficiency improvement costs in a service charge through cost-benefit analysis. 

Insurance commission: Requires that any commission or rebates from insurance are disclosed to tenants, with advantageous rates passed on to tenants as a reduction in cost. 

Benchmarking: Includes benchmarking of costs to help assess performance. 

Dispute resolution: Codifies dispute resolution processes, aiming to reduce ambiguity and provide clearer guidance. 

Transparency and financial accountability: Key changes include requiring year-end accounts to be signed off and supported by independent reviews. It also emphasizes clear documentation for cost allocation, favoring floor area for apportionment, and mandates disclosure and passing on of insurance commissions and rebates.

Tenant communication: The Code promotes proactive communication with tenants, requiring budgets to be provided at least a month before the service charge year begins. Prompt responses to tenant queries are expected, with supporting documents available upon request. Mandatory digital access to service charge data is also highlighted.

Financial management: New provisions allow for collecting advance contributions for major projects, held in interest-bearing trust accounts. Landlords can now recover major works costs over several years through deferred recovery and retain budgeted funds for delayed works in designated interest-bearing accounts.

Dispute resolution: The Code encourages the use of Alternative Dispute Resolution (ADR) clauses in new leases. Tenants who withhold service charge payments must provide clear justification and calculation of the amount.

ESG and value: Property managers must demonstrate value for money and service quality, including regular contract reviews. The Code also provides guidance on recovering costs for energy efficiency improvements and encourages collaboration on sustainability initiatives. It reflects recent legislation like the Building Safety Act 2022, which impacts remediation cost recovery from tenants

Certified accounts: The 2025 Code requires property managers to formally certify year-end service charge accounts, confirming that all costs are actual and properly incurred.

Independent review: Year-end accounts must now be supported by an independent review, such as an accountant's report or audit.

Apportionment matrix: Landlords must provide a clear and detailed service charge apportionment matrix annually, explaining exactly how costs are calculated and allocated to each tenant. The guidance recommends using floor area for apportionment over rateable values. 

Improved communication and tenant engagement:

Earlier budget timelines: Landlords must issue budgets at least one month before the start of the service charge year. Approved year-end accounts must be provided within four months of the year-end.

Justification for delays: If budget or account deadlines cannot be met, managers must provide a timely explanation to tenants. 

New financial mechanisms:

Forward funding: The 2025 Code allows for new mechanisms to pay for major projects, such as roof replacements, over several years.

Trust accounts: Monies collected in advance for major works must be held in separate, interest-bearing trust accounts. This applies to both forward-funded projects and funds retained for deferred works.

Deferred recovery: It is now possible for landlords to pay for urgent, unbudgeted works up-front and recover costs from tenants over an agreed-upon period through payment plans. 

Updates to dispute resolution and procedures:

Alternative Dispute Resolution (ADR): The Code now actively encourages the use of ADR clauses in new leases and urges its use to resolve disputes.

Justified withholding of payments: The Code clarifies that tenants withholding service charge payments must provide a clear calculation and justification for the amount in dispute. 

Added sustainability and value provisions:

Environmental, Social, and Governance (ESG): The 2025 Code explicitly addresses ESG factors, requiring landlords to consider sustainability in operational decisions.

Improvement works: While enhancements and improvements are still generally not recoverable, the new guidance offers more detail on how landlords can justify including costs for energy efficiency improvements through a cost-benefit analysis.

Value for money: Property managers must demonstrate value for money and service quality, conducting regular reviews of service contracts at least every three years. 

Broader regulatory alignment:

Building Safety Act 2022: The new code reflects legislative changes, including prohibiting landlords from recovering remediation costs, such as cladding replacement, from tenants under the Building Safety Act.

Heat network regulations: The Code references regulations that mandate metering and usage-based billing for buildings with central heating or cooling systems.

Further reading: https://www.rics.org/news-insights/rics-launches-new-edition-of-its-service-charges-in-commercial-property-standard