The professional standard provides guidance to landlords, tenants, managers and their advisers about best practice concerning the management and administration of service charges in commercial property.
We look below at what has changed from the 1st edition and why the updated standard is important to those who own, occupy or manage commercial property.
The Key takeaways
· The RICS professional standard sets out industry best practice relating to the management and administration of commercial service charges.· The professional standard was brought up to date when the 2nd edition came into effect on 31 December 2025.
· Significant changes include the introduction of new mandatory time limits for the provision of service charge information, a requirement for managers to confirm actual costs when signing-off accounts and other measures designed to promote fairness and financial transparency.
· The 2nd edition of the professional standard is relevant when negotiating new leases, as well as when service charge disputes arise. It is essential reading for commercial landlords, tenants, managers and their advisers.
What is the RICS Professional Standard?
The RICS professional standard on service charges in commercial property sets out industry best practice relating to the management and administration of service charges.RICS members and RICS-regulated firms must comply with the requirements set out in the professional standard, and non-RICS members are encouraged to comply with it as well.
The stated objectives of the professional standard are to:
· Improve general standards and promote best practice, uniformity, fairness and transparency in the management and administration of service charges in commercial property.
· Ensure the timely issue of service charges budgets and year end accounts.
· Reduce the causes of disputes and provide guidance on resolving disputes if they arise.
· Provide guidance to landlords, tenants, managers and solicitors about the negotiation, drafting, interpretation and operation of leases, in accordance with best practice.
The professional standard contains certain mandatory requirements underpinned by core principles and supported by recommended best practice.
The professional standard does not override the terms of business leases, but existing service charge clauses should be interpreted as far as possible in line with the principles and practices set out in it.
Where a lease is silent, or the wording is unclear or ambiguous, the service charges should be managed and administered in accordance with the standard.
Similarly, when new leases are granted – including where a new lease is to replace an old one – it is generally recommended that the parties should ensure that the service charge provisions in the new lease reflect the RICS professional standard.
What has changed in the 2nd Edition?
The 1st edition of the professional standard was published in 2018.The 2nd edition was published in June 2025 and came into effect on 31 December 2025.
RICS has published the 2nd edition to ensure the standard remains up-to-date, relevant and maintains its status in the market.
The 2nd edition incorporates a number of significant changes from the 1st edition, including the following:
Mandatory timescales – an approved set of service charge year end accounts should now be given within four months of the service charge year end, and budgets must be issued with an explanatory commentary at least one month before the start of the year. Where these timescales cannot be met, a timely explanation must be provided.
Sign-off of accounts – the property manager is required to include a statement in the service charge year end accounts to confirm that the accounts, supporting notes and any accompanying information records a true and accurate reflection of actual costs.
Withholding payment – when acting for tenants, practitioners must advise clients that they are generally not entitled to withhold payment of service charges that have been properly demanded. Where a lease provides for a landlord’s service charge certificate to be conclusive, commercial tenants may still be able to challenge the expenditure, but the Supreme Court has said that they should adopt a “pay now, argue later” approach. However, the standard notes that in certain circumstances it may not be considered unreasonable to withhold payment of any difference that arises from a mathematical or computational error.
Management fees – such fees should only relate to the actual work carried out in managing and administering the service charge. Fees for additional work, such as asset management and rent collection, should not be included in the service charge management fee.
Management companies – the standard has been revised to confirm that management companies that manage business parks or industrial estates should now also comply with the professional standard.
Insurance – any remuneration, commission, rebates and other sources of income or benefits received in connection with placing or managing insurance should always be disclosed. Where advantageous rates are secured, for example from placing group contracts, the value of any discounts should be passed on to tenants in full. Landlords and managers are specifically required to adopt a fair and reasonable manner of allocation and provide details of the building apportionment. Managers are also required to disclose all pending insurance claims in the service charge year end accounts.
Utilities – the standard has been amended to provide that the installation of additional utility meters (which may help deliver improved cost apportionment or recharge), may be deemed to be a legitimate service charge expenditure where the cost benefit is in the interest of some or all tenants.
Heat networks – a new section has been added relating to the Heat Network (Metering and Billing) Regulations 2014, which apply to multi-let buildings where heat, hot water or cooling is supplied through a communal system. Where they apply, the Regulations may require additional bills to be issued to tenants during the year which may not align with the service charge provisions. Failure to comply is a criminal offence. The standard confirms that, in the case of any conflict, the Regulations may override the terms of the lease, and that managers should clearly communicate to tenants the requirements under the Regulations.
Allocation and apportionment – managers must ensure that service charge apportionments are provided to tenants with the budget and service charge accounts, that clearly show the detailed basis of calculation and total apportionment for each unit. If any change to the basis of apportionment is considered appropriate or necessary, the amendment should be rational, reasonable and clearly communicated to tenants.
Mixed-use schemes – a new section has been added that is relevant not only to mixed commercial and residential properties, but also where a mixed-use scheme involves a variety of different commercial uses, such as retail, offices and leisure. A specific sub-section has been inserted concerning the Building Safety Act 2022, to clarify that no costs relating to the remediation of relevant defects, such as the removal and replacement of external cladding in higher-risk buildings, is recoverable from leaseholders and that in certain respects the Act makes no distinction between residential and non-residential premises such that the exclusion may apply to some commercial tenants.
Estate management charges – a new section has been included, requiring managers of large mixed-use schemes to consider the fair and reasonable apportionment of costs of maintaining and servicing common areas accessible to the public. One example given is where a retail tenant may generate significant footfall from shoppers relative to the use of the communal areas by the residential tenants.
Dispute resolution – where a dispute arises, the parties are encouraged to define the issues and particularly to establish the nature of the dispute and whether it arises from a proper interpretation of the lease (which parties should seek to resolve through negotiation, mediation, arbitration, expert determination or other form of alternative dispute resolution), or whether it is an issue of compliance with the professional standard (which could be dealt with under a complaint handling procedure or formal complaint to RICS).
Anticipated future expenditure – new provisions set out how contributions, sinking and reserve funds should be treated in the service charge accounts where they relate to the funding of future costs.
Environmental performance – this section has been substantially revised and reflects the tension between encouraging environmental, social and governance (ESG) considerations on the one hand, with the recognition on the other that costs relating to the landlord’s ESG strategy may not be recoverable under the lease if they do not come within the ‘services’ or are considered to be improvements or enhancements.
Why is the publication of the 2nd edition important?
We regularly deal with disputes concerning service charges relating to commercial and mixed-use properties.When such disputes arise, whilst the terms of the lease are or paramount importance, the fact that commercial tenants do not have the same statutory protections as residential long leaseholders means that the RICS professional standard is often the next port of call when considering whether the landlord has or has not acted reasonably and in accordance with good practice.
The standard is also relevant when dealing with the grant and renewal of leases, particularly if there is an argument for modernising the service charge provisions.
The professional standard is therefore a very important document for landlords, tenants, managers and their respective advisers, who all need to be aware of what has changed in the 2nd edition.
One point that we particularly welcome is that, throughout the new standard, property managers are specifically required to recognise that they are spending tenants’ money. That is a basic, but fundamental, point that is sometimes overlooked. It underpins the amendments relating to financial transparency, timeliness, fairness and improving communication with tenants.
