Property Management expert at Naylors, Katy Clark, explains how recent changes to the RICS Service Charge Code affect commercial property occupiers.
Much of the advice around the new edition of the RICS Service Charge Code is aimed at landlords but if you occupy a commercial property – what does it mean for you?
The 2nd Edition of the Code recently came into force and, for occupiers, the updated guidance brings better transparency, timing and accountability. But, also, more responsibility.
Occupiers can leverage the new Code to gain clearer visibility around costs, reduce disputes, and ultimately make more informed property decisions.
Changes to the guidance – including more predictable budgeting, better upfront communication and fairer cost-allocation – are all welcome developments.
Clearer explanations of costs
Budgets are no longer expected to be just a series of numbers presented in isolation. Instead, they should be accompanied by supporting commentary that contextualises expenses and highlights any material changes. This enables occupiers to better scrutinise and reduce their reliance on retrospective queries once costs have already been incurred.
The new Code states that landlord-specific costs should be excluded – such as void unit expenses, for example – which helps ensure tenants aren’t unfairly charged.
New rules around funding major works
There is the push for a more consistent approach to how service charges are used to fund significant repair or replacement works. These big works can have a substantial impact on both occupiers and landlords due to their cost and disruption.
While both parties typically support carrying out necessary works, the way they are funded – and the effect on cash flow – is a key concern. The updated Code provides clearer best practice on funding options, including where costs are collected in advance through the service charge, as well as approaches where the landlord completes the works and then recovers the expenditure from tenants over an agreed period.
More timely reconciliations
Delayed reconciliations have long been a source of frustration for occupiers – often impacting financial planning and internal reporting.
The new Code includes tighter expectations around the timing of year-end reconciliations which are designed to bring occupiers clarity sooner. Most institutional landlords and managing agents were already broadly aligned with best practice anyway but the Code gives those who weren’t, a push to do better.
Hopefully, occupiers will see greater levels of compliance with the Code’s requirements to issue reconciliations within four months of year end.
Fewer disputes
The Code increasingly encourages upfront communication over reactive explanation. Early engagement between occupiers and landlords and better information sharing should ensure less disputes arise from unclear or unexpected costs.
There are changes aimed at ensuring there is no ‘over-recovery’ and that there is clear treatment of reserve/sinking funds by reporting what landlords are doing, in advance.
This includes clearer supporting documentation – such as detailed cost breakdowns and clear apportionment matrices – as well as more explicit reporting on areas like reserve or sinking funds. Occupiers are no longer expected to simply accept charges; they are being given the tools to understand them.
The result should be fewer disputes but the key to that is both parties being equipped to interpret and act on the information provided.
More work for occupiers
The new Code brings more responsibility for occupiers. This is due to the increasing volume and complexity of the information provided.
Interpreting budgets, understanding reconciliations and assessing whether costs are ‘fair and reasonable’ all requires time, expertise, and often specialist knowledge.
This is particularly true for national or multi-site occupiers, where inconsistencies between assets can quickly accumulate into significant cost inefficiencies.
As the landscape becomes more complex, occupiers increasingly need property management professionals for support.
Independent service charge reviews and audits are becoming more common, helping occupiers validate costs, identify discrepancies and ensure compliance with both lease terms and the Code.
Lease advisory is another key area for occupiers, especially in assessing recoverability and identifying areas of risk – whether that’s linked to ESG expenditure, reserve funds or ambiguous lease wording.
For occupiers with larger portfolios, strategic advice can unlock even greater value. By analysing service charge data across multiple sites, it becomes possible to identify inconsistencies, benchmark performance and uncover opportunities for cost savings.
In summary
The evolution of the Service Charge Code shouldn’t be viewed purely through a compliance lens. For occupiers, it is a chance to take greater control of property costs and engage more constructively with landlords and managing agents.
However, doing so effectively requires more than passive receipt of information. It needs active interpretation, informed challenge and in many cases, professional support.
In a market where margins are under pressure and operational efficiency is paramount, service charge transparency is not just an administrative improvement, it’s a strategic advantage.
Those occupiers who embrace this shift and equip themselves with the right expertise, will be best placed to save both time and money in the years ahead.
Find out more at www.naylors.co.uk
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