Meeting higher expectations in residential management

Residential service charge management remains one of the most scrutinised and frequently disputed areas of leasehold practice.

Against a backdrop of legislative reform, increasing regulatory scrutiny and rising consumer expectations, the fourth edition of RICS' Service charge residential management code (the Code) aims to improve transparency, governance, professional competence and accountability in the sector.

This new edition of the Code was published in March and has been effective since 7 April. However, the third edition still applies to leasehold management disputes reviewed by the First-tier Tribunal if they relate to acts or omissions that took place before 7 April. Once all of these cases have been processed, the third edition will be archived.

This article examines some of the key changes introduced in the latest edition and considers what they mean for managing agents, landlords and other residential leasehold property professionals in England.

It is approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993, which empowers approval of any code 'designed to promote desirable practices in relation to any matter or matters directly or indirectly concerned with the management of residential property by relevant persons'.

The definition of 'relevant persons' is broad. As well as landlords and managing agents, it covers any party discharging management functions including repairs, maintenance, insurance and service provision in relation to long leasehold residential property with a variable service charge.

While the Code continues to operate as an approved statutory code of practice, it is now also an RICS professional standard – previous editions were guidance or best practice – setting out required practices for RICS members and RICS-regulated firms.

As in every RICS professional standard, required practices are denoted by use of the word 'must' (the Code has 165) and expected practices are denoted by use of the word 'should' (the Code has more than 500).

Unusually, though, the Code's musts are also legal requirements under UK legislation and therefore apply to every individual and firm regardless of whether they are RICS regulated. This dual status reinforces the Code's authority as a bible for all block managers and wider teams in the block management sector.

The Code applies to landlords, freeholders, superior landlords, resident management companies (RMCs), right to manage (RTM) companies, managing agents – including tribunal-appointed managers – registered providers, local authority housing providers and any other relevant person discharging management functions where a service charge is payable under a long lease (granted for a term exceeding 21 years).

The inclusion of registered providers and local authority housing providers represents a significant change. Historically, these organisations were excluded as public sector landlords.

However, many now operate substantial leasehold and shared-ownership portfolios, where variable service charges apply. Therefore, it was no longer considered appropriate to exclude them from the Code's scope.

Accordingly, extensive consultation was undertaken with registered providers, local authority landlords and representative bodies during the Code's development.

One of the most significant changes is the incorporation of provisions relating to the Building Safety Act 2022 (the Act). The new section 9 focuses primarily on the responsibilities of statutory dutyholders and the leaseholder protection measures established by the Building Safety Act 2022, rather than providing a comprehensive overview of the legislation.

Transparency is a central theme throughout the fourth edition. Key changes include:

• new requirements to disclose commissions and other sources of income to leaseholders annually (see sections 5.18 and 6.7)
• the use of clear and unambiguous fee structures in management agreements to provide more flexibility for managing agents and transparency for leaseholders (see section 6.4)
• the requirement to publish details of charges and timescales for the provision of information to leaseholders (section 14.1).

These measures align with wider consumer protection objectives and reinforce expectations of openness and accountability across the sector.

Section 2 introduces enhanced professionalism requirements, including:

• alignment with RICS' Rules of Conduct
• a reinforced duty of care to both clients and leaseholders
• compliance with the Equality Act 2010 and
• specific consideration of the needs of vulnerable consumers.

Together, these changes reflect RICS' continued emphasis on professional competence, ethical practice and serving the public interest.

The fourth edition also strengthens requirements relating to service charge budgeting and financial management. New provisions require the preparation of clear service charge budgets, supported by sufficient explanatory information, including the methodology used to apportion costs (see section 5.3).

The Code also provides more detailed guidance on reserve funds, emphasising the need for a transparent basis for both collection and expenditure. In addition, it promotes the use of planned preventive maintenance plans where appropriate (see section 5.5 and RICS' Planned preventative maintenance of commercial and residential property).

Another important development is the introduction of a requirement, mirroring the approach taken in RICS' Service charges in commercial property, for service charge accounts to be approved by, or on behalf of, the landlord (see section 5.11).

This confirmation should verify that the accounts accurately represent the expenditure incurred in providing services and that the costs being recovered are consistent with the terms of the lease.

However, as the details and implementation of these reforms continue to develop, leasehold professionals will need to remain alert to further legislative change, secondary legislation and wider reform of the leasehold sector in the years ahead.

Against this backdrop, the fourth edition of the Code represents a clear step towards greater transparency, professionalism and safety-focused governance.

Through its mandatory requirements and practical guidance, the Code aims to support higher standards of property management, promote consistency across the sector and deliver better outcomes for leaseholders, landlords and managing agents, while complementing both existing and emerging legislation.