The Rent Review Specialist
Service Charge
The idea of a service charge is that the landlord uses the amount of the charge to pay for the costs of repairing, maintaining and decorating all those other parts of the building and land over which the tenant has no legal right of occupation.
The charge is usually rendered in two parts: an interim charge payable in advance at the start of the service charge year, and a final or balancing charge payable in arrear at the end of the service charge year comprising all costs and expenses incurred by the landlord in fulfilling its obligations per the extent of the service charge in the lease.
Whether the service charge includes a sinking fund would depend upon whether there is provision for a sinking fund in the items that comprise the service charge. Often a service will including legal costs and fees payable to Managing Agents, and it may be that where the management is undertaken by the landlord himself, a management fee could be included.
In theory, there should be no profit element; in practice whether there is depends upon how careful the tenant is to ensure that the amount of the charge properly complies with the obligations that the service charge covers.
There is no statutory control of commercial property service charges so tenants cannot look to legislation to curb landlord excess. The only safeguard is the wording and phrasing of terms included in the service charge in the actual lease. Also, there is a voluntary code maintained by the RICS.
The service charge year may not tally with the commencement date of the term of the tenancy. Where a building is let to a number of tenants, it is probable that the service charge would be on-going regardless of the comings-and-goings of the various tenancies. In modern leases, a service charge payment is generally defined as rent; so as to enable the use of bailiffs to collect the charge in the event of tenant non-payment, rather than having to go to court to sue the tenant.
Generally, for a tenant, a service-charge is akin to signing a blank cheque in favour of the landlord, so is a source of friction.
The charge is usually rendered in two parts: an interim charge payable in advance at the start of the service charge year, and a final or balancing charge payable in arrear at the end of the service charge year comprising all costs and expenses incurred by the landlord in fulfilling its obligations per the extent of the service charge in the lease.
Whether the service charge includes a sinking fund would depend upon whether there is provision for a sinking fund in the items that comprise the service charge. Often a service will including legal costs and fees payable to Managing Agents, and it may be that where the management is undertaken by the landlord himself, a management fee could be included.
In theory, there should be no profit element; in practice whether there is depends upon how careful the tenant is to ensure that the amount of the charge properly complies with the obligations that the service charge covers.
There is no statutory control of commercial property service charges so tenants cannot look to legislation to curb landlord excess. The only safeguard is the wording and phrasing of terms included in the service charge in the actual lease. Also, there is a voluntary code maintained by the RICS.
The service charge year may not tally with the commencement date of the term of the tenancy. Where a building is let to a number of tenants, it is probable that the service charge would be on-going regardless of the comings-and-goings of the various tenancies. In modern leases, a service charge payment is generally defined as rent; so as to enable the use of bailiffs to collect the charge in the event of tenant non-payment, rather than having to go to court to sue the tenant.
Generally, for a tenant, a service-charge is akin to signing a blank cheque in favour of the landlord, so is a source of friction.