Commercial service charges generally relate to the upkeep of common parts of a building or estate. While the exact items covered will vary depending on the nature of the premises and the lease terms, typical inclusions may consist of:
• Repairs and maintenance of common areas: This includes structural repairs, roof maintenance, exterior cleaning, and internal communal areas such as lobbies, corridors, and toilets.
• Utilities for shared areas: Electricity, water, and heating/cooling used in lobbies, stairwells, shared toilets, or car parks may be apportioned to tenants through the service charge.
• Cleaning and security: This might involve security patrols, CCTV systems, and cleaning contractors for shared areas.
• Building management: Fees paid to a managing agent or facilities manager who oversees the day-to-day running of the building.
• Insurance: Usually the landlord insures the building and recovers the cost from tenants via the service charge (excluding tenants’ contents and business interruption insurance, which tenants must arrange themselves).
• Lift and HVAC maintenance: If your premises include access to shared mechanical or electrical systems such as lifts, air conditioning, or ventilation, these costs may be pooled.
• Landscaping and grounds maintenance: Common in retail parks or business estates, this includes gardening, gritting in winter, and general upkeep of outdoor spaces.
Check Your Lease Carefully
The scope of what the landlord can recover through the service charge is governed by the lease. Some leases include a comprehensive list of recoverable costs, while others use broader phrases such as “all reasonable costs incurred in the repair and maintenance of the building.”
It’s essential to check your lease to understand what is — and isn’t — allowed. In modern commercial leases, service charge clauses are often detailed, and may include exclusions — such as costs arising from the landlord’s failure to maintain the building, or improvement works not related to repair. You should also look for any caps or limits on service charge increases, particularly in shorter leases or leases of small units.
Tips for Managing and Challenging Service Charges
If you believe a service charge is excessive, poorly explained, or unfair, here are steps you can take:Request a full breakdown: Landlords should be transparent about how the service charge is calculated. Ask for a budget at the start of the year and a reconciliation at the end, showing actual costs versus estimates.
Query any unexplained or unusual costs: For example, if there’s a sharp increase in cleaning or security charges, ask for justification — such as new contractor rates, increased frequency, or changes in service level.
Check whether costs are reasonable: Service charges should reflect market rates. If you suspect you’re being overcharged, you can request evidence such as tender documents, invoices, or comparable market costs.
Use audit rights: Many leases include a clause that allows tenants to audit the service charge accounts, usually once per year. This might be at your cost, but can be a valuable tool to hold landlords accountable.
Form a tenants’ group: In multi-occupied buildings, tenants may find strength in numbers. A collective approach can often lead to greater transparency and better negotiation on service levels and charges.
Refer to the RICS Professional Statement: The Royal Institution of Chartered Surveyors (RICS) publishes a Service Charge Code for Commercial Property, which sets out best practice for fair and transparent service charges. While it isn’t law, many leases incorporate it by reference or expect landlords to comply. You can refer to it when raising concerns.
Legal challenge as a last resort: If negotiations fail, legal action may be possible. The lease terms will govern what’s allowed, and you may be able to seek redress through arbitration, an expert determination, or court proceedings — but this can be costly and should usually be a last resort.
Final Thoughts
Service charges can be a significant and sometimes contentious element of commercial leases. However, by being proactive — reviewing your lease, understanding your rights, and challenging questionable costs — you can ensure you only pay what’s fair and reasonable. If in doubt, seek advice from a commercial property solicitor or a chartered surveyor familiar with service charge disputes.