Service Charges – An Open Ended Liability!

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Service Charges are a key feature of leases where the premises which are let to Tenants make up parts of a larger building or estate. In these kinds of situations it will often make more sense for the Landlord (or its agents) to manage the common areas of the building or estate, rather than attempting to share out the responsibilities between the various Tenants.

Service Charges can be a major issue for Tenants because they represent a potentially open-ended liability – if the Landlord’s costs are higher than expected then the tenant’s payments will be too, and in extreme cases the Service Charge can be higher than the rent itself and can cause serious financial difficulty for Tenants.

Firstly, Tenants will be anxious to ensure that they are only paying a fair proportion of the costs for the whole of the building or estate. Each Tenant’s proportion should be based on the area of their unit as a proportion of the total area of all of the units – this ensures that a Tenant is not disadvantaged if the units are not all the same size.

Secondly, Tenants will want to know that they cannot be called upon to cover additional costs if there are any vacant units; Tenants will want to ensure that the landlord remains obliged to provide the services and that any shortfall as a result of vacant units falls upon the Landlord.

Thirdly, Tenants will want to satisfy themselves as to the likely level of Service Charge costs going forward. The problem in this respect is that past levels of costs are not necessarily indicative of future issues – for instance the costs might have been static for several years but if major works become necessary further down the line then the costs could increase substantially and without warning. It is important to check over past Service Charge accounts and enquire as to whether any major works are planned, but this is not a complete answer.

Taking the above into consideration it is important for a Tenant to take legal advice to ensure that they fully understand any Service Charge provision which may appear in a Lease. As with all of the main drafting issues in relation to commercial leases, the key is that both Landlords and Tenants need to ensure that they understand how the Service Charge provisions will work; the competing interests of the parties mean that there is often a balance to be struck and the parties should satisfy themselves that they have reasonable safeguards in place to protect their interests.

Our Commercial Property Team offer a fixed fee lease report which will flag up any issues you may have regarding service charges.

For further information contact our Property Solicitors on 0800 689 0831 or make an enquiry here.

 

 

Stacey Lakeland

About Stacey Lakeland

Stacey Lakeland is a Trainee Solicitor within the Property department at Forbes Solicitors. Stacey’s blogs cover general property matters relating to both residential and commercial property matters such as updates to legislation affecting the property sector, landlord and tenant matters, topics which relate to the construction and development sector and also issues relating to property disposals and acquisitions, to name a few.
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