Service Charges – a benefit or a burden?

If you are letting part of a building or estate, such as one floor of an office building or one industrial unit on an estate, you are likely to be paying a significant sum in service charge, as well as the annual rent, and business rates, but what do you get for your money?

Services provided by a landlord and/or management company (depending on the wording of your lease) may include maintaining and repairing the roads and pathways of an estate or the structure and roofs of a building, as well as the costs of security, cleaning or lighting an estate, or heating a building. Additional expenses may include public liability insurance for the common parts of the building or estate, fees incurred by managing agents, solicitors or surveyors and the cost of statutory compliance (such as installing updated fire protection equipment following changes in legislation).

The contributions, based on a service charge budget drawn up by the landlord, are usually collected quarterly or monthly at the same time as the annual rent, with balancing charges invoiced after the end of the accounting year.

To avoid excessive charges, several steps are open to a tenant to reduce their service charge costs:

  1. It is possible to limit the number of services to be provided by the landlord (this is often difficult to negotiate if the landlord applies standard service charge provisions across a building or estate with several tenants, because it is difficult to implement).
  2. A tenant could negotiate a service charge cap with a landlord, setting a limit on the maximum to be charged by the landlord every year. This means that the tenant can calculate in advance the maximum anticipated cost every year, although the cap often increases by RPI or CPI every year.
  3. The tenant may agree a specific carve out for their demised premises only, such as an exclusion on contributing towards capital expenditure relating to the building or estate or removing an obligation to contribute towards the cost of chasing other tenants for arrears of rent.

For further advice of service charges and other aspects of landlord and tenant law, please contact Kathryn Johns of Phillips Solicitors on 01256 854674 or by email at kathryn.johns@phillips-law.co.uk.