The updated RICS Code marks a significant change in residential service charge standards, incorporating changes driven by the Building Safety Act 2022 and the Leasehold and Freehold Reform Act 2024 (“LAFRA 2024”).
“The fundamental aim of the code is to improve standards generally, promote best practice, uniformity, reasonableness, encourage sustainable funding, cost effective long-term management, long-term planning and that word – ‘transparency’.
Jeff Platt TPI's CEO & lead author of the new code
What does it mean:
- Freeholders to be more involved, including approving year-end service charge accounts.
- Updating the RICS code to include key elements of the Building Safety Act 2024.
- The Code itself has been elevated from a guidance note to a mandatory compliance for RICS members.
- The updated Code now includes Social Housing.
- Declaration of Commissions by Managing Agents and Freeholders.
What does the Building Safety Act mean for service charges?
The Building Safety Act 2022 introduced implied terms for leases of higher-risk buildings, including recovery of building safety costs as part of the service charge — recoverable unless excluded under section 20F, and subject to being reasonably incurred under section 19 of the Landlord and Tenant Act 1985. The agreed level of services and any fees should be clearly documented in a written management agreement.
What's expected of a maintenance plan and reserve fund?
All buildings should have a costed, long-term planned preventative maintenance (PPM) plan reflecting the building’s age and condition, which should inform reserve fund collection and projected income streams. Where the lease doesn’t allow the landlord to hold reserve funds, leaseholders should be made fully aware of future cost implications so they can plan their own savings.
What do landlords need to get right on service charge budgets?
Initial budgets, especially on new developments, must reflect future costs — any deviation from steady-state costs should be justified to leaseholders before purchase. Landlords should ensure sufficient funds are available year-round; where the lease doesn’t allow interest on borrowing to be recovered, they may need to engage leaseholders and apply to the FTT to vary the lease.
Who should approve the service charge accounts?
Accounts should be approved by, or on behalf of, the landlord. Where the lease specifies an approver, that person should sign off; where it’s silent, the approver should be the landlord or an appropriately qualified, competent person with relevant experience and professional integrity, and their status should be made clear.
What's changed with ground rent?
The updated Code abolishes ground rents above a peppercorn on qualifying new residential long leases granted on or after 30 June 2022, and on the extended part of informal lease extensions.
Note for agents: landlords may face a financial penalty for breaching the Act, so agents need to be aware of any lease extension requirements.
What do leaseholders need to know about commissions?
Leaseholders should be notified annually of any commission or income the landlord or agent receives from placing insurance or procuring services, declared alongside the year-end accounts and proportional to the value of the service. Under FCA rules, any commission must pass a fair value assessment showing the price paid is reasonable for the benefit received.
Talk to us
If you would like to talk through what any of these changes mean for your portfolio, or if you would like to arrange a briefing, please get in touch with the Workman Residential team:
Dallas Craik, Head of Residential Management
+44 (0)7596 878 145 | dallas.craik@workman.co.uk
Caroline Burchell, Senior Residential Management
+44 (0)7512 301093 | caroline.burchell@workman.co.uk
Read the full report on RICS Service Charge Residential Management Code.
