Revised service charge code to help housing association tenants

Housing association tenants of long leasehold flats and the service charges they pay are to be included for the first time under a revised service charge residential management code.  This, alongside other proposed changes are announced as part of a consultation by the Royal Institution of Chartered Surveyors (RICS).

Originally developed in 1997, previous editions of the service charge code (a Secretary of State approved standard which sets out best practice in the management of leasehold residential blocks and estates) only applied to leaseholders within privately owned developments. It is used by the courts and in the ‘First-tier Tribunal (Property Chamber)’ to settle disputes about service charges, alongside evidence provided by RICS and other professionals.

Given the increasing number of residential leasehold blocks which are owned and managed by social housing providers, the industry is now seeking agreement from the Levelling Up Secretary that will ensure housing associations and local authority housing providers follow the new code.

With around 4.6 million  leasehold properties in England alone, the Code impacts 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. Proposed changes to the Code include:

• Enhanced requirements of agents and landlords to declare all commissions and a justification for receiving them.
  
• Additional requirement for landlords and agents to set realistic service charge budgets for new developments.
  
• Industry standard cost classifications to reflect the commercial service charge code and provide consistent standard headings for service charge budgets and expenditure.
  

With the increasing costs of managing blocks of flats including insurance premium rises, particularly where buildings need to be made safe, there is a need for a clear code that helps guide landlords and managing agents on managing buildings, service charge funds, forward planning and keeping leaseholders informed.

Antony Parkinson, Senior Specialist for Property Standards at RICS, said:

“Proposed enhancements to the Code will improve consistency within the industry and transparency for leaseholders in relation to service charges, agents fees, long term planned preventative maintenance plans  and reserve funds 

“I encourage all leaseholders, landlords, registered providers, managing agents and anyone else affected by the Code to participate in the consultation and share feedback on the proposals.”

Jeff Platt, Technical Author of the new service charge code, said:

“Since the 1st Edition of the Code was published in 1997, Housing Associations and Local Authorities have evolved into large scale providers of leasehold, shared-ownership and rented homes where the costs of services and property management are recovered as variable service charges. Leaseholders and tenants paying those charges should expect to receive similar best practice management standards from all landlords, managers and managing agents. The proposed enhancements bring the Code into line with the Secretary of State’s powers to approve a Code of Practice designed to promote desirable practices in relation to the management of any residential property subject to a variable service charge.

“I encourage all landlords, managing agents, leaseholders and shared-owners to consider how the Code will benefit themselves and their consumers and to participate in the consultation by providing feedback on the proposals.”

-ENDS-

NOTES FOR EDITORS

FAQs

1. Who does the service charge code apply to? All landlords of leasehold residential properties and managing agents, the actions of whom impact on the leaseholders of over 4 million leasehold residential properties in England. The current edition excludes housing associations which are proposed to be included in the new 4th edition.
   
2. Does the proposed new code prevent landlords from charging for specific items? No, the code sets out how landlords or managing agents can charge for any relevant services which will normally be defined by the leases for the specific block subject to compliance with relevant legislation.
   
3. Will this stop landlords from increasing service charges? 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.
   
4. How does a leaseholder benefit from this code? There are a number of proposed amendments in the 4th edition which will provide enhanced transparency for leaseholders across a range of fundamental elements in the management of residential blocks.
   

The updated Code will also be publicly available for leaseholders to view and review to better understand the requirements of landlords and agents.   

ADDITIONAL INFORMATION

A consultation on the proposed new service charge code was held in 2022.

RICS will consider feedback and the final service charge code will be finalised and submitted to the Department for Levelling Up, Housing and Communities for Secretary of State approval in summer 2023.

About RICS

We are RICS. Everything we do is designed to effect positive change in the built and natural environments. Through our respected global standards, leading professional progression and our trusted data and insight, we promote and enforce the highest professional standards in the development and management of land, real estate, construction and infrastructure.

Our work with others provides a foundation for confident markets, pioneers better places to live and work and is a force for positive social impact.

FOR MORE INFORMATION:

John Bayliss: jbayliss@rics.org

Rebecca Hunt: rhunt@rics.org