When looking for new leasehold premises, it is natural for a business to focus on the rent. However, it is important not to forget that a service charge payable under a lease can represent a significant additional cost of occupying commercial premises.
Numerous issues can arise. Is the landlord actually obliged to provide services, or does the lease only say that if he elects to do so, he can pass on the costs to the tenants? Does the lease allow the landlord to be as lavish as he likes in providing services, safe in the knowledge that the tenants must pick up the tab? Does it make adequate provision for a sinking fund to ensure that items of major capital expenditure, such as the replacement of lifts or extensive refurbishments, are spread over a reasonable period?
As a tenant, will you receive adequate estimates and accounting information relating to the service charge?
As a landlord what should your position be if the tenant tries to negotiate an annual cap on the service charge?
More generally, do the service charge provisions reflect best practice requirements as set out in the Code of Practice “Service Charges in Commercial Property”, issued by the Royal Institution of Chartered Surveyors?
As experienced commercial property lawyers, we can advise on all these matters and take steps to ensure that your position whether you are a landlord or a would be tenant is adequately protected. If you would like to know more, please contact Caroline Wilton or Martin Banham-Hall.