Commercial service charges—a tenant’s practical lease negotiation guide (Part 1)
Commercial service charges—a tenant’s practical lease negotiation guide (Part 1)

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Commercial service charges—a tenant’s practical lease negotiation guide (Part 1)
  • Landlord’s service charge objectives
  • Tenant’s service charge objectives
  • The Service Charge Statement
  • ‘Common expenses’ clauses
  • Service charge caps
  • Performance of services—what does the landlord covenant to do?
  • Service charge in underleases

Landlord’s service charge objectives

The landlord’s main concern is to ensure that the costs of maintenance and repair of the landlord's investment are passed on to the tenants and are not deducted from the landlord’s income/rents. This is sometimes referred to as the ‘clear lease’ principle. If the landlord sells its asset, one of the buyer’s key questions will be whether the service charge is fully recoverable. If it is not, then that is likely to affect the market value of the asset. Other key aims for the landlord are:

  1. flexibility in deciding when and how the services are provided, limiting its obligations to providing core services while retaining flexibility to recover other sums, and

  2. maintaining consistency across leases to ensure the service charge is operable. For this reason, landlords may argue that tenants have to accept the service charge clauses as drawn. Tenants should not accept this at face value. They may not be able to make significant changes, but there is still likely to be some scope to improve their position

Tenant’s service charge objectives

Evaluating the likely service charge costs for the letting

The tenant must establish what the likely level of service charge costs will be. For some premises, the service charge could be as much as the rent, and so this