Commercial Service Charges

Commercial service charges are frequently an area of dispute between landlords and tenants. Whilst occupiers can accurately budget for their rent commitments, year on year increases in service charge costs and/or unexpected large year end balancing charges can cause real financial difficulty. The lack of control over levels of expenditure can undoubtedly increases an occupier's view that its interests are not being properly recognised. For landlords, they will have obligations to carry out certain works to the building and provide specified services to the tenant and any under recovery in service charge will hit them in the pocket.

Unlike in relation to residential dwellings, there is no statutory control over commercial service charges. In order to ascertain what services the landlord is obliged to provide, what costs it can recover and the timing of payment of charges it is necessary to carefully consider the terms of the relevant lease. If a dispute arises it may also be useful to refer to the RICS Code of Practice on Service charges in commercial property (2nd edition). The Code has been prepared to promote best practice in terms of service charges for commercial properties in new leases or renewed leases.

Issues on which IBB's Real Estate Dispute Resolution Team have recently advised on include:

• Whether a landlord could recover the costs of major capital works under the service charge when the tenancy was in the last year of the term;
• The ownership of a substantial service charge sinking fund;
• The conclusiveness or otherwise of a service charge certificate;
• The recovery of service charge arrears.