Service Charge Disputes
If you lease part of a commercial premises, your lease will likely include service charges.
These are costs incurred by the landlord for running and maintaining their part of the property and are charged back to the tenant(s). Despite these costs being outlined and specified in a lease, service charge disputes are one of the most common issues that arise between commercial landlords and tenants.
What do service charges include?
Unlike residential leases where service charges are subject to statutory rules, commercial landlords can include any service charge provisions they wish. However, they may be challenged based on fairness and reasonableness.
There is a statutory code with requirements and recommendations, and while this is not legally binding, it is a useful benchmark of good and fair practice when leasing commercial property.
The types of service charges included in commercial leases vary, however, typically, they include:
Maintenance and repairs to interior shared/common areas, such as corridors, lifts, and office space;
- Maintenance and repair work to external/structural areas, such as roofing; and
- The cost of building insurance.
Service charge clause
Where applicable, a commercial lease will include a service charge clause. This will usually govern:
- How and when a service charge is paid;
- What a landlord must produce in terms of service charge costs, such as an annual budget/expenditure records; and
- What a landlord can charge as a service charge.
Service charges are payable in addition to rent and are usually either fixed or proportional. Fixed is where the tenant pays a set percentage of the anticipated service charge for the entire premises, e.g. an office block. A proportional service charge is based on the tenant’s entity as a proportion of the entire premises.
Commercial service charge disputes usually arise when service charge clauses are unclear, appear unfair and/or a tenant disagrees with the amount they must pay. An example is when major works are needed or maintenance is due to an area that the tenant does not benefit from or use, e.g. works required on a lift when the tenant is situated on the ground floor, or a roof repair on a different part of the premises.
If you are negotiating a lease, you will want to ensure the service charge provisions are fair. Our Commercial Property team can assist with the drafting of leases.
Can you dispute a service charge?
Yes, there are situations where you can dispute a service charge. Common reasons for service charge disputes include:
- The tenant deems the cost of a service charge as unreasonable or excessive;
- A tenant is concerned that the landlord is asking over and above what has been agreed in the lease;
- The tenant believes there is a lack of transparency in what they are being asked to pay, e.g. there is no breakdown of costs, and the landlord has not provided details as required under the lease.
How our service charge dispute solicitors can help
Service charge disputes can be complex, and many leases include strict time limits on raising objections, so it is vital that you seek legal advice as soon as a dispute arises.
Our commercial property dispute solicitors guide both landlords and tenants on a range of issues relating to disputing service charges. Our lawyers will review the terms of the lease and advise you on the next steps, whilst ensuring your best interests are kept in mind.
As part of our expertise in advising tenants on the above common types of disputes, our expert team also advises landlords on managing service charge disputes and provides guidance on what should be recovered through service charges.
Service charge dispute FAQs
This depends on the lease terms. Some leases require service charges in advance of expenditure, and others after expenditure.
If payment is in advance, the following process usually applies:
- The landlord issues the tenant a service charge estimate (based on anticipated expenditure) before the start of the chargeable year;
- The tenant will have to pay this service charge in advance, either monthly or quarterly, on top of their rent;
- At the end of the service charge year, the landlord will provide a service charge statement (see below for more details). If there is a shortfall, the tenant will be required to make a payment to cover this. Likewise, if there is an overpayment, the tenant may be due a refund, or the landlord will deduct it from future service charge payments.
The dates and timescales for paying a service charge will be as set out in the lease.
The first step in disputing a commercial service charge is to seek legal advice. Disputing a service charge can be complex, so having a specialist solicitor who can review your lease and advise you on the next steps is vital.
If you want to dispute a service charge as a tenant, it can be tempting to withhold paying your rent until the matter is resolved. Doing so may breach the terms of your lease and could result in your landlord issuing court proceedings, so it is important to seek legal advice from a specialist solicitor as soon as the dispute arises. Having an expert on your side helps to ensure that any correspondence with your landlord is managed and executed appropriately and your legal rights are protected.
Yes. If the cost of any services is less than what was budgeted, a tenant can ask to be refunded for the overpayment.
If you feel that you have been overcharged or a service charge has been claimed incorrectly, our specialists can advise you on the reasonableness of the service charge paid/claimed and advise you on any refund request you wish to make.
If a tenant fails to pay a service charge, the landlord can take back possession of the property. Find out more about property possession here.
Contact our service charge disputes solicitors
Our commercial property dispute solicitors advise both commercial landlords and tenants on disputes relating to service charges. We can review the lease and advise you on making a claim. To get in touch, call us on 0117 325 2929 or fill in our online enquiry form.