Service Charges – Code of Practice (Commercial Property)
Are there any codes of practice for commercial property?
On 19 April 2019, the RICS Professional Statement “Service Charges in commercial property” was introduced which replaced the previous code of practice: “Service Charges in Commercial Property (third edition)". A second edition of the Professional Standard came into effect from 31 December 2025.
The purpose of the Professional Standard is to improve general standards and promote best practice, uniformity, fairness and transparency in the management and administration of service charges in commercial property.
The Professional Standard introduces mandatory requirements alongside existing best practice provisions for RICS members dealing with commercial service charge matters. RICS members must not depart from mandatory provisions in the Professional Standard. In respect of best practice provisions, the RICS recognises that there may be exceptional circumstances in which it is appropriate for a member to depart from them.
What are the key principles?
It is important for RICS members to familiarise themselves with the provisions of the Professional Standard. It contains 4 aims and objectives, 8 mandatory requirements and core principles supported by best practice.
The mandatory requirements are as follows:
- All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.
- Managers must seek to recover no more than 100% of the proper and actual costs of the provision or supply of the services.
- Managers must ensure issue to tenants:
- budgets, including an explanatory commentary at least one month prior to the start of the service charge year;
- an approved set of service charge year end accounts showing a true and accurate record of the actual expenditure constituting the service charge within 4 months of the service charge year.
- Where these timescales cannot be met, a timely explanation must be provided of when they will be issued and the reason for the delay in line with the mandatory communication provisions.
- Managers must ensure that a service charge apportionment matrix, which clearly shows the detailed basis of calculation and total apportionment per schedule for each unit, is provided with the budget and service charge accounts to all tenants.
- Service charge monies (including reserve and sinking funds) must be held in one or more discrete (or virtual) bank accounts.
- Interest earned on service charge accounts – or where separate accounts per property are not operated, a proper and reasonable amount of interest calculated on normal commercial rates – must be credited to the service charge account after appropriate deductions have been made.
- Where acting on behalf of a tenant, practitioners must advise their clients that tenants are not generally entitled to withhold payment of service charges that have been properly demanded. However, in certain circumstances withholding of payment of any difference arising from mathematical or computational error may not be considered unreasonable.
- When acting on behalf of a landlord, managers must ensure that, following resolution of a dispute, any service charge that has been raised incorrectly should be adjusted to correct the error without delay.
What happens if there is a breach of the Professional Standard?
For RICS members there may be disciplinary consequences for failure to comply with the Professional Standard. It is not technically binding on non-RICS members including landlords, tenants and their professional advisers but is usually best practice and is often relied upon or referenced by those parties if any disputes concerning the treatment of service charges arise.