Commercial property service charges – what you need to know
The Royal Institute of Chartered Surveyors (RICS) have recently issued a consultation of the 4th edition of the RICS code of practice ‘service charges in commercial property’. The aim of the consultation is to ensure that service charges for commercial tenants are transparent upfront and fair and that any cost incurred to repair or maintain buildings is in accordance with the terms of the Lease.
The service charge provisions of a lease are often one of the main issues of contention in leases, for both landlords and tenants. It is important for both landlords and tenants to ensure that service charge provisions within the lease are adequately drafted to meet their requirements.
Where a building is multi-let, the landlord will almost always retain responsibility for repair and maintenance of the exterior and structure of the building. This means the Landlord can ensure that the exterior and structure of the building remains in good repair, this also avoid disputes as to which particular tenant is responsible for repairing which part of the building.
The landlord will want to ensure that the service charge clause covers all costs which it may incur in relation to the building. Where the building or an estate is multi-let, the landlord will want to ensure that the service charge provisions in all the separate leases of a building are in a standard form, to avoid any shortfall in the costs which the landlord can reclaim.
However, it is important that service charge provisions are reviewed carefully by any prospective tenant in order to ensure that liability for service charge costs relating to items which the tenant will not have the use or benefit of.
For example, it is not uncommon to see a lease of the ground floor of a property where the tenant is required to contribute towards the costs of repairing and maintaining the lift within the building. Given in tenant will only be using the ground floor of the building then any reference to the lift should be deleted from the service charge clauses.
The service charge provisions in the lease will often contain a wide-ranging list of items which the service charge may relate to. A tenant should consider the specified items very carefully and if there are any items which it will not or cannot use, bring these to the attention of their solicitor to see if they can be deleted from the clause. Landlords will not always agree to such items being deleted from the clause but it may be possible to agree a compromise for example by way of a service charge cap.
It is important both landlords and tenants ensure that they understand how the service charge provisions work; the competing interests of the parties mean that there is often a balance that has to be struck and both parties should satisfy themselves that they have reasonable safeguards in place to protect their interests.