service charge
Tenants usually have to pay a service charge in leases of multi-occupancy buildings or in large industrial, office or retail estates. The purpose of a service charge is to pay for the cost of common services provided by the landlord for the benefit of all tenants in the building or estate. Unfortunately, problems can arise, usually over the amount of the service charge and what landlords seek to spend the service charge on.
The major issues for tenants faced with paying service charges are:
- the amount of the service charge – tenants should ask for sight of previous years’ service charges for the particular building or estate. Most landlords should be able to provide this. Alternatively, for new buildings, the landlords should be able to give an estimate of the likely service charge along with their calculations of how they arrive at the particular figures.
- tenants’ proportion of the service charge – tenants will want their contribution towards the service charge not to exceed a specified proportion or, alternatively, to be tied to a formula which produces a fair outcome for the tenants. Tenants will want to avoid giving the landlords the power to decide what the tenants’ proportion of the service charge should comprise (since, for example, a landlord could fix the tenants’ share of the service charge at 100% where the tenants occupy only one quarter of a building but are its only occupier).
- calculation and management of the service charge – tenants should check whether the landlords operate the service charge in accordance with the accepted code of practice for service charges. If not, why do the landlords not do so?
- Where tenants have concerns over the likely amount of the service charge, they should seek to negotiate a cap on the amount chargeable by the landlords.
The above is an indication of only some of the main points arising in service charge clauses. Advice from an experienced commercial property lawyer should be taken when negotiating the terms of service charge clauses.