On 31 December 2025 the updated RICS professional standard, Service charges in commercial property, second edition (the Standard), came into force, introducing the most significant shift in service charge governance in nearly a decade. The Standard tightens controls, raises transparency expectations and reshapes the way both landlords and tenants should approach service charge negotiations. This article explores the purpose of the Standard, the key changes taking effect in 2026 and the practical implications for all parties involved.
What is the Standard?
The Standard aims to promote uniformity, fairness and transparency in the way service charges are managed and reported across commercial and mixed‑use property. It reflects RICS’ drive to promote best practice across the industry and reduce disputes between landlords, tenants, and property managers.
RICS members and RICS-regulated firms must comply with the terms of the Standard and may depart from it only where there is good reason and with clear justification. The Standard is not legislation and cannot override the terms of a lease; rather, it sets a benchmark for professional standards in managing service charges. The lease remains the starting point when reviewing any existing service charge regime, although the Standard is increasingly regarded as a recognised indicator of what is reasonable in practice.
What has changed from the previous Standard?
Timing
Landlords must issue service charge budgets to tenants at least one month before the start of the service charge year, and year-end accounts and reconciliations must be provided within four months of the end of the service charge year. Any delay must be accompanied by an explanation from the landlord. The service charge budget and reconciliation should include an apportionment matrix providing a breakdown of total costs and weighting between occupiers.
These changes require landlords and property managers to adopt more disciplined budgeting and reconciliation processes and give tenants greater confidence that accounts should be settled and estimated sooner rather than being delayed for several months, which is not uncommon for year-end reconciliations. The changes to timing also provide greater clarity on actual and expected service charge costs during heads of terms and lease negotiations as they impose a more disciplined timetable.
Costs
The costs incurred in a service charge regime and rules governing their recovery have been tightened in the Standard. In particular:
Any monies held for service charges yet to be incurred must be held in discrete or virtual accounts, with interest credited to the service charge (rather than the landlord or property manager), after bank charges and tax have been deducted.
Management fees may no longer be based on a percentage of the budgeted or actual service charge; fees should now be fixed at the start of a service charge year.
Any commission, rebates or other payments received by the landlord or its manager should be declared in the service charge accounts. The Standard adds that landlords should retain commission only where this is reasonable to reflect work undertaken. This is likely to affect landlords who receive commission for buildings insurance.
Non-recoverable costs
The Standard clarifies that the following must not be recovered through the service charge:
Landlord investment costs, including asset management, rent collection, and costs relating to enhancing the landlord's reversionary interest.
Void property costs, including rates, insurance and services attributable to empty units, and the marketing of empty units.
Initial capital costs, such as original fit‑out, installation of new plant or equipment, or improvement works that go beyond repair or replacement (unless expressly justified and agreed).
Future redevelopment costs, including feasibility studies and project planning.
Negligence-related costs, including expenditure arising from avoidable overspending, poor maintenance or failure to manage plant or equipment properly.
These exclusions are important in maintaining fairness between landlord and tenant.
Other
Landlords and managers should only include Environmental, Social, and Governance (ESG) expenditure where it constitutes a genuine service, with all other ESG initiatives funded by the landlord.
In the event of disputes under the lease, the parties should seek to resolve differences through Alternative Dispute Resolution (ADR) in the first instance rather than pursuing court action.
How will it shape negotiations?
The Standard is likely to influence both heads of terms and lease drafting in a number of ways:
Tenants may request an express requirement that the service charge provisions align with the Standard.
Earlier visibility of budgets and reconciliations will give tenants a clearer understanding of expected costs during negotiations.
Landlords should flag any intended departures or exceptional service charge items upfront to avoid later disagreement.
Advisers on both sides are increasingly likely to rely on the Standard as a benchmark when negotiating and drafting service charge clauses.
key takeaways
The Standard represents a significant shift in how service charges must be managed and documented. For landlords, agents and tenants alike, it introduces clearer expectations, tighter controls and more transparent reporting frameworks. In practice, this means:
Landlords and managing agents should take proactive steps now to review their current service charge processes, ensure that budgets and reconciliations can be produced within the prescribed timescales and confirm that management fees, commission arrangements and interest‑crediting policies comply with the Standard.
Tenants should familiarise themselves with the changes and ensure that heads of terms and draft leases reflect the Standard’s requirements, particularly around transparency, apportionment and non‑recoverable costs.
Both parties should expect the Standard to feature more prominently in negotiations, as it will increasingly be used as a benchmark for what constitutes “reasonable” practice.
Overall, the Standard provides a clearer, more structured framework that, if followed, reduces the likelihood of disputes and supports a more collaborative and transparent approach to service charge management.
If you would like us to review your current service charge provisions, please get in touch with our real estate team.
