Commercial service charges—a tenant’s practical lease negotiation guide (Part 2)
Commercial service charges—a tenant’s practical lease negotiation guide (Part 2)

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 2)
  • Payment of the service charge
  • Service charge heads of expenditure—key principles
  • Service charge expenditure—what should be excluded?
  • The Service Charge Statement

Payment of the service charge

What proportion of service charge costs should the tenant pay?

It is usual for a lease not to refer to a specific percentage of service charge costs, but instead provide for the tenant to pay a ‘fair and reasonable’ proportion of the costs or some similar discretionary wording, often based on floor area. When considering this, tenants should concentrate on the following matters:

  1. landlords should confirm the actual percentage of costs attributed to the premises currently and confirm how it is calculated in practice (floor areas could be gross or net for example). Tenants should press for this information early on in the transaction as it might not be readily available

  2. are there costs which should not be attributed to the premises (in other words is there anything which makes a calculation based on floor area inappropriate)? For example, it may not be fair for a ground floor tenant to pay for a lift, and should a tenant pay for car park maintenance if the lease does not permit it to park?

  3. ensuring the proportion is fair, reasonable and properly determined. The Model Commercial Lease (MCL) has a useful clause which goes further than usually seen as it sets out fully the basis of the landlord’s calculation, but should be acceptable to a landlord