New RICS standard on services charges in commercial property (second edition)

On 25 June 2025, The Royal Institution of Chartered Surveyors (RICS), published the second edition of its service charges in commercial property standard (“the new standard”).

The new standard is to be effective from 31 December 2025 and builds upon the standards set out in the first edition, which was published seven years ago. The new standard details the current industry best practice for performance, processes and procedures relating to the management and administration of service charges for commercial/mixed use property.

Aims of RICS’ new standard on service charges

These are:

• To promote uniformity, fairness and transparency and improve the standards of service charge management and administration
• Ensure service charge budgets and end of year accounts are issued in a timely manner.

Compliance is compulsory for RICS members and RICS-regulated firms.  However, the new standard states that it also aims to “provide guidance to solicitors, their clients (whether landlords or tenants) and managers of service charges in the negotiation, drafting, interpretation and operation of leases, in accordance with best practice”.

The new standard sets out eight mandatory requirements which are supported by core principles and detailed best practice recommendations.

Mandatory requirements of RICS’ new standard on service charges

1. Expenditure to be recovered via a service charge must be in accordance with the terms of the lease
2. No more than 100% of the proper and actual costs incurred should be recovered
3. Service charge budgets are to be issued at least one month before the commencement of the next service charge year and service charge accounts detailing actual expenditure are to be issued within four months of the end of a service charge year.
4. A service charge apportionment matrix (being a detailed basis of calculation and apportionments for each unit) is to be provided with the budget and service charge accounts
5. Service charge monies must be held in one or more discrete (or virtual) bank accounts
6. Interest on service charge accounts must be credited to the service charge account
7. Tenants are not generally entitled to withhold payment of properly demanded service charges, and those acting on behalf of a tenant must advise tenants of this
8. Following resolution of a dispute, incorrectly raised service charges should be adjusted and errors corrected without delay.

Core principles of RICS’ new standard on service charges

Nine core principles underpin and support the mandatory requirements. It is spelled out that a duty of care is owed to landlords and tenants in respect of service charge management, and continued emphasis is placed in the new standard on the need for timeliness and transparency in relation to how costs are calculated, allocated and communicated to the parties.

It is important to note that the new standard cannot override the provisions in the lease, but if the lease is silent, unclear or ambiguous, the new standard advises that its standards of performance should be adopted.

The new standard is only effective for service charge periods commencing from 31 December 2025, so there may be further developments before it comes into effect. For example, The Institute of Chartered Accountants in England and Wales is reviewing its technical release – “accountants’ reports on commercial property service charge accounts”, which may result in amendments to the new standard.

With service charges being such a hot topic, both in the commercial and residential space, guidance on the current industry best practice and standards should be welcomed and we look forward to seeing how it is adopted and applied later in the year.

If you have any questions about the topics raised in this article, our Real Estate experts will be happy to help.