Directors and RTM Companies: New Duties Under the 4th Edition Service Charge Code

If you are a director of a residents' management company (RMC), a right to manage (RTM) company, or a residents' association - or if you sit on a tenants' management board - the 4th edition of the Service Charge Residential Management Code has significant implications for you.

Published on 17 March 2026, the code was approved by the Secretary of State by statutory instrument (SI 2026/298) and has been in force since 7 April 2026. Unlike predecessor editions, it includes a substantial new section dedicated to the Building Safety Act 2022 - and many of the duties it describes land squarely on directors and leaseholder-controlled entities.

One point of interpretation worth knowing up front: the code distinguishes between "must" - legal requirements - and "should" - best practice it expects you to follow. Both matter, but only the former carries direct legal force.

Who does this apply to?

The code broadly defines "you" as anyone who manages residential leasehold property subject to a variable service charge - including residents' management companies (RMCs), right to manage (RTM) companies, managing agents appointed by either, and landlords managing property directly.

If you are a director of an RMC or RTM company, you are personally involved in management decisions that the code governs. Even where you've appointed a professional managing agent, you remain responsible for ensuring the code's standards are met - the code applies to the entity managing the building, not just the professionals it hires.

The single biggest change: Building Safety Act duties

The most consequential addition in the 4th edition is Section 9: Building Safety Act 2022. For directors of buildings in scope, this is essential reading.

Are you an "Accountable Person"?

The Building Safety Act introduces the concept of an Accountable Person (AP) - a person or entity that:

• Holds a legal estate in possession in any part of the common parts of a building, or
• Does not hold a legal estate but is under a relevant repairing obligation for any part of the common parts

This almost certainly captures your RMC or RTM company. A residents' management company that holds the freehold or a tripartite lease management entity is almost certainly an AP. An RTM company, which takes on repairing and management obligations, is similarly likely to qualify.

Where your building has only one AP, that entity is automatically the Principal Accountable Person (PAP). Where there are multiple APs, the PAP is typically the one responsible for the structure and exterior of the building.

This is not a technicality. Being an AP creates serious ongoing legal duties. Failing to comply can result in enforcement action by the Building Safety Regulator (BSR).

If your building is "higher-risk"

A higher-risk building is defined as a building in England that:

• Is at least 18 metres in height OR has at least 7 storeys, and
• Contains at least 2 residential units

If your building meets this threshold, the new regime applies in full.

Registration with the Building Safety Regulator

All occupied higher-risk buildings must have been registered with the BSR by October 2023. If your building was not registered, you need to act immediately - operating an occupied higher-risk building without registration is a criminal offence.

Duties of an Accountable Person

As an AP, your duties under Part 4 (sections 72 to 94) of the Building Safety Act include:

• Assess and manage building safety risks (fire spread and structural failure)
• Implement proportionate measures to prevent those risks materialising
• Cooperate and share information with other APs, the principal AP, and the BSR
• Respond to residents' requests for information about building safety
• Engage with residents and carry out duties under the residents' engagement strategy
• Maintain and keep up to date the "golden thread" of building information - a comprehensive, accessible digital record of the building's construction, modifications, and safety measures
• Transfer all building safety information to any incoming AP on change of ownership or control
• Notify the BSR of any change in accountable persons

As Principal Accountable Person, you must additionally:

• Register the building with the BSR
• Prepare and revise a safety case report - a documented assessment of how safety risks are being managed
• Prepare the residents' engagement strategy
• Establish and operate a mandatory occurrence reporting system for specified safety incidents
• Apply for a building assessment certificate when directed to do so by the Building Safety Regulator, and display it

These are not aspirational standards - they are legal requirements. Directors should take legal advice on their specific obligations and ensure their managing agent has the capability to support compliance.

Leaseholder protections you must not breach

The code covers leaseholder protections under the Building Safety Act that constrain what you can charge through the service charge. These are not optional.

The "relevant building" threshold

The leaseholder cost protections apply to buildings that are at least 11 metres high or have at least 5 storeys - a lower bar than the higher-risk definition. If your building is 5+ storeys, you're likely subject to these restrictions.

One important exception: a building is not a "relevant building" if it is leaseholder-owned - for example, where the freehold was acquired by collective enfranchisement or is otherwise owned by the leaseholders, or the land is commonhold. In those buildings the Schedule 8 cost protections do not apply at all.

Qualifying leases - zero cladding costs

If a leaseholder holds a qualifying lease (granted before 14 February 2022 and the flat was their only or principal home at that date, or they owned no more than two other UK dwellings in addition to the flat), you cannot charge them anything for cladding remediation - through the service charge or by any other means. Certain connected replacement leases granted after 14 February 2022 can also qualify. Attempting to charge cladding costs to a qualifying leaseholder is a breach of the Building Safety Act.

Non-cladding costs - the waterfall

For other building safety remediation costs, the Act creates a cascade of liability that must be followed before any costs can be passed to qualifying leaseholders:

1. Developer as building owner: zero recoverable from leaseholders
2. Landlord associated with developer: zero recoverable
3. Landlord with net worth over £2 million per building: landlord absorbs costs
4. Where the qualifying lease was worth under £175,000 (£325,000 in Greater London) at 14 February 2022: nothing is recoverable from that leaseholder
5. Only after these tests fail can any costs be considered for leaseholders - and even then, subject to statutory caps

Note that the landlord contribution condition does not apply to registered providers of social housing.

If your RMC acquired the freehold through enfranchisement, remember that a leaseholder-owned building sits outside the Schedule 8 regime entirely - the waterfall above does not apply. Remediation contribution orders against developers may still be available; take legal advice.

Service charge management: what the code expects

Budgets and accounts

• The code expects service charge budgets to be approved before demands are issued and to accompany the first demand of the year
• Budgets should have sufficient detail to explain what each charge covers and why
• Year-end accounts should include explanatory notes on variances from budget
• Accounts should use a standard format to allow year-on-year comparison
• Accounts should be approved on behalf of the landlord and, as best practice, examined annually by an independent accountant - the lease may additionally require certification or audit

As a director, you should be actively reviewing budgets and accounts - not rubber-stamping whatever the managing agent presents. You are spending leaseholders' money.

Reserve / sinking funds

The 4th edition introduces stronger expectations around preventative maintenance planning. Directors should:

• Commission or maintain a costed capital expenditure plan covering the medium to long term
• Ensure reserve fund contributions are calibrated to meet anticipated major works
• Not allow reserve funds to languish at levels that will necessitate large one-off demands

Unexpectedly large service charge demands are a leading cause of FTT applications. A well-maintained capital expenditure plan is one of the most effective tools for avoiding them.

Transparency on commissions and conflicts of interest

The code has strengthened provisions on conflicts of interest. Where your managing agent (or any related party) receives any form of remuneration - commissions on insurance, referral fees from contractors - this must be fully disclosed and transparent to all parties. Ensure your management agreement addresses this explicitly.

Section 20 consultation

The statutory obligation to consult leaseholders on qualifying works (above £250 per leaseholder) or long-term agreements (over 12 months) is prominently covered - note that a long-term agreement only triggers consultation where any one leaseholder's contribution exceeds £100 a year. As a director authorising major works or long-term contracts, ensure your managing agent follows the correct Section 20 process. If you fail to consult, recovery is capped at £250 per leaseholder for works (£100 a year for qualifying long-term agreements) regardless of actual expenditure, unless the First-tier Tribunal grants dispensation.

Terms of engagement with your managing agent

Section 6 of the code sets out what a proper management agreement should contain. Ensure it clearly covers:

• Scope of core management services included in the fee
• Additional services and their separate fees
• Disclosure of all income the agent receives in connection with the management, including commissions
• Termination provisions and the handover process for client money and documentation
• Membership of a redress scheme - legally required for residential managing agents

The handover process is particularly important: if you change managing agents, the code expects the outgoing agent to transfer all service charge funds held in trust, all documentation, and all records within the agreed timescale. Get the contractual terms right before you need them.

Action checklist for directors

Immediate

• Determine whether your building meets the higher-risk building definition (18m+ or 7 storeys+)
• If higher-risk: confirm registration with the Building Safety Regulator is in place
• Confirm your managing agent has reviewed the 4th edition and is complying with it - the code has been in force since 7 April 2026
• Review your management agreement to ensure it meets Section 6 requirements

Near-term

• Commission or update a costed capital expenditure plan to underpin reserve fund strategy
• Ensure your service charge accounting format follows a standard year-on-year structure and includes apportionment schedules
• Confirm your managing agent discloses all commissions (especially on insurance)
• Review your formal complaints procedure and make it accessible to leaseholders

If you're in a relevant building (11m+ or 5 storeys+)

• Take legal advice on which leaseholders hold qualifying leases and what cost protections apply
• Ensure your managing agent understands the prohibition on charging cladding costs to qualifying leaseholders
• Understand your obligations regarding landlord certificates

If you're in a higher-risk building

• Confirm your Accountable Person and Principal Accountable Person are correctly identified
• Review your golden thread information - is it complete, accessible, and up to date?
• Ensure a safety case report is in place or in progress
• Confirm a mandatory occurrence reporting system is operational
• Review your resident engagement strategy

The bottom line

The 4th edition represents a significant raising of the bar for residential leasehold management. For directors of RMCs and RTM companies, the key message is this: management is not a passive role.

You are spending leaseholders' money, you may hold duties as an Accountable Person under a major Act of Parliament, and leaseholders have an array of rights to challenge how you exercise your responsibilities. The code is now a formally recognised statutory standard that courts and tribunals will refer to.

The good news: the code is also a guide. It tells you clearly what good management looks like and what leaseholders are entitled to expect. Following it is the best protection against disputes, FTT applications, and complaints to RICS or a redress ombudsman.

A free download of the 4th edition - along with a summary of changes from the 3rd edition and the Basis of Conclusions document - is available on the RICS Service Charge Residential Management Code page. A recording of the RICS launch webinar may also be available on the same page.