Service charges are one of the most common sources of tension between commercial landlords and tenants. They can significantly increase the overall cost of occupying premises, yet many tenants feel unsure about what they are actually paying for, or if the charges are even valid and enforceable.
Understanding the scope of service charges, how they should be calculated, and when you can challenge them is essential knowledge for any business tenant. This article sets out the key principles under English law and highlights practical steps commercial tenants can take to protect their position.
What Are Service Charges?
Service charges are payments made by commercial tenants to cover the landlord’s costs of providing services, maintenance and management of the building or estate. They usually include:
- Repairs and maintenance of the structure and common parts
- Cleaning, lighting and heating of shared areas
- Security and CCTV
- Lift maintenance
- Landscaping and external areas
- Managing agent fees
- Buildings insurance (depending on the lease structure)
In multi‑let buildings such as offices, shopping centres or industrial estates, these costs can be substantial. Crucially, your liability will always depend on the wording of your lease, not on what the landlord considers reasonable.
Key Legal Principles Tenants Should Know
- The Landlord Can Only Recover What the Lease Allows
The starting point is Garside v RFYC Ltd [2011] and similar authorities: service charges must be expressly provided for in the lease. If a cost is not covered by the service charge clause, the landlord cannot recover it.
- Costs Must Be Reasonable
While commercial leases are not regulated in the same way as residential leases, the courts still expect landlords to act reasonably in incurring service charge expenditure. In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023], the Supreme Court upheld the landlord-friendly “pay now, argue later” model but emphasised that tenants retain the right to challenge the reasonableness of the charges afterwards.
- Landlords Must Provide Evidence
A tenant is entitled to proper accounts, receipts, breakdowns and, in many cases, certification by a surveyor. Vague or incomplete invoices are not sufficient.
What Commercial Tenants Should Challenge
Many commercial tenants pay service charge demands without scrutiny, but there are several areas where challenges commonly arise.
- Charges for Improvements Rather Than Repairs
A landlord cannot pass on the cost of upgrading or improving a building unless the lease expressly allows it. Examples include:
- Installing new air-conditioning when repairs would have sufficed
- Replacing plant or machinery prematurely
- Cosmetic upgrades intended to enhance asset value
Unless improvement costs are clearly authorised, they should be resisted.
- Charges for Landlord’s Own Obligations
Landlords sometimes attempt to recover costs that the lease requires them to absorb. For example:
- Structural repairs
- Major roof replacement where the lease excludes structural items
- Costs relating solely to the landlord’s retained parts
If it is the landlord’s responsibility, it should not be recharged.
- Excessive Management Fees
Managing agents often charge a percentage of total service charge expenditure. Fees can become excessive, particularly when:
- They exceed market norms (often around 10–15%)
- Multiple layers of administration fees are added
- Services are outsourced at inflated rates
Tenants should request a detailed breakdown of agent tasks and costs.
- Lack of Competitive Tendering
Where large contracts are renewed, such as cleaning, security or maintenance, best practice (and often the lease) requires competitive tendering. If prices increase significantly without explanation, tenants should challenge the procurement process.
- Unexpected or “One-Off” Expenditure
Substantial items such as major decoration, car park resurfacing or replacement equipment should be forecast in advance. If the landlord has not built appropriate sinking or reserve funds, tenants may be able to challenge sudden spikes.
- Out-of-Scope Insurance Costs
Tenants should verify whether:
- Insurance premiums reflect the actual risk
- Commissions are being taken by brokers or managing agents
- Tenants are being charged for policy items they do not benefit from
Insurance charges often contain recoveries that are either unclear or simply inappropriate.
Practical Steps for Tenants
Review the Lease Carefully
Your lease determines everything. A solicitor can quickly identify:
- What the landlord can and cannot recover
- Caps, exclusions or limitations
- Requirements for consultation or certification
Request Detailed Accounts
Tenants are entitled to:
- Year-end service charge statements
- Receipts and invoices
- Explanation of large or unusual items
A landlord’s refusal to provide documentation is a red flag.
Compare Costs to Market Norms
Benchmarking costs against similar buildings often highlights overcharging, especially for:
- Cleaning and security
- Utility costs
- Management fees
Act Promptly
Many leases contain strict time limits for service charge challenges. A delay can result in the tenant losing the right to dispute the charges.
When to Seek Legal Advice
If you receive a service charge demand that seems excessive, unusual or unjustified, it is worth obtaining early advice. A well‑timed challenge can:
- Reduce your liability
- Prevent similar issues in future years
- Strengthen your position in any lease renewal or rent review discussions
At Ison Harrison, our Commercial Property team regularly advises tenants on service charge disputes, lease interpretation and negotiations with landlords. We can review your lease, assess the charges and help you decide the best way forward.
Contact Our Commercial Property Specialists
If you would like independent legal advice on service charges or any other commercial leasing issue, please contact Ison Harrison Solicitors for a no‑obligation consultation. We support landlords, business owners and commercial tenants across the region and nationally, providing clear, practical guidance you can rely on.
Call us on 0113 284 5000 or email commprop@isonharrison.co.uk.
