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4 APR 2022

Service charge residential management Code

This draft Code is an update to the 3rd edition, published in 2016.

The Code promotes desirable practices in respect of the management of residential leasehold property and aims to:

  • Improve general standards and promote best practice, uniformity, reasonableness and transparency in the management and administration of long leasehold residential property.
  • Ensure the timely issue of all documentation including budgets and year end accounts.
  • Reduce the causes of disputes and to give guidance to resolving disputes where these do occur.

The Code is for landlords, leaseholders, managing agents, managers, and occupiers of leasehold property and is used in First Tier Tribunal hearings.

Have your say on the draft Code https://consultations.rics.org/servicechargecode4thedition/

This consultation closes 30th May.

FAQ’s

With around 4.6 million leasehold properties in England alone, the RICS Service charge residential management Code affects every leaseholder and the service charges they pay. Proposed enhancements to the Code will ensure greater transparency in relation to service charges and associated expenditure.

Q. Who is the code aimed at?
A. All landlords of leasehold residential properties and managing agents, the actions of whom impact on the leaseholders of over 4.5 million leasehold residential properties in England.

Q. Why are Registered Providers to be included within the scope?
A. The current and previous editions have excluded Housing Associations and Local Authority Housing providers (Registered Providers of Social Housing). Registered providers now fall within the scope of the draft 4th edition to reflect the increasing number of leasehold residential properties being owned and/or managed by registered providers.

Q. What are Industry standard cost classifications?
A. pre-defined approach of standardising cost headings and levels of analysis for use in service charge budgets and statements of actual expenditure. The standardised approach is designed to create transparency and consistency across industry. Further information is provided in the draft Code.

Q. Will this stop landlords from increasing service charges?
A. No, but the code requires landlords or the managing agent to set out the rationale behind setting service charges and reserve funds including planning ahead for major expenditure via the use of Planned Preventative Maintenance plans and associated reserve funds, where permitted by the lease.

Q. What is a Planned Preventative Maintenance plan and why are they relevant?
A. A building/development specific schedule of anticipated works and associated costs within a defined period of time. The draft 4th edition of the Code endorses the use of PPM plans to inform reserve fund collection programmes and to provide leaseholders with a copy of the PPM so that they can plan for anticipated expenditure.

Q. What is an apportionment schedule?
A. Apportionment schedules set out the percentage of service charge for which each leaseholder is liable and the rationale behind the percentages/apportionments. Apportionments should reflect the lease terms and be clearly communicated to leaseholders for transparency as set out in the current draft.

Q. What are expenditure explanatory notes?
A. A summary of the reasons for any variances between service charge budgets, which are generally based on estimates of expenditure, and actual expenditure. In the draft 4th edition we set out that explanatory notes should accompany an annual statement to leaseholders following the service charge period,

Q. Who should service charge accounts be approved by?
A. Proposals in the draft 4th edition of the Code are that service charge accounts should be approved by the landlord or an agent on behalf of the landlord to confirm that the accounts produced represent the actual expenditure incurred by the landlord in supplying the services, and that the expenditure is in accordance with the terms of the leases.

Q. What are event fees and why are they relevant to the Code?
A. Event fees are fees that become payable by an individual leaseholder on events, such as the resale or subletting of some properties held on long leases. The draft Code has introduced a new section which states that events fees should be clearly highlighted and transparent to leaseholders and potential purchasers

Q. Why are ‘statutory rights of leaseholders’ included at Appendix C of the Code?
A. This section has been included within previous editions of the Code. RICS will be producing a leasehold consumer guide which may be better suited to provide this information but we would appreciate feedback via the consultation on retaining this section in the Code or removing.

Q. Why is ‘Information leaseholders can expect to receive during the ownership of a flat’ included at Appendix D of the Code.
A. This section was introduced in the current edition of the Code. We would appreciate feedback via the consultation as to whether this section should be retained in the 4th edition or would be better suited to a leasehold consumer guide.

Q. Will the Service charge residential management Code, 4th edition be approved by the Secretary of State for Levelling Up Housing and Communities?
A. The current and previous editions of the Code have been approved by the Secretary of State in line with Section 87 of the Leasehold Reform, Housing and Urban Development Act, 1993. RICS will be requesting Secretary of State approval of the RICS Service charge residential management Code, 4th edition once complete.