Service charges in commercial property are one of the biggest hidden costs in a lease, and unlike residential leases there is no statutory cap or reasonableness test protecting you. What you owe is whatever the lease says you owe, calculated however the lease says to calculate it. Before signing, you should ask for at least three years of historic service charge accounts, check the apportionment method, find out whether there is a cap or sinking fund, and confirm what counts as a recoverable cost. Get these wrong and a modest headline rent can turn into a service charge bill that doubles your occupation cost within a few years.
Commercial tenants have far less protection here than most people assume, right up until the bill arrives.
Why commercial is different from residential
Residential service charges are governed by statute, with a reasonableness requirement and consultation obligations under the Landlord and Tenant Act 1985. Commercial leases have no equivalent statutory framework. The RICS Service Charges in Commercial Property Professional Statement sets out good practice, but it does not bind a landlord unless the lease itself incorporates it, which many older leases do not.
That gap is where disputes come from. A landlord operating outside the RICS code is not acting unlawfully. They are simply not bound by standards a tenant may have assumed applied.
What to check before you sign
| Item | Why it matters |
|---|---|
| Historic accounts, at least three years | Shows the real trend rather than a landlord’s opening estimate |
| Apportionment method | Floor area, rateable value or a fixed percentage can produce very different bills |
| Sinking or reserve fund | Smooths major costs like roof or lift replacement, but ties up your money in advance |
| Cap on annual increase | Without one, costs can rise sharply with no ceiling |
| RICS code incorporation | Brings in a reasonableness and transparency standard that otherwise does not apply |
| Management fee basis | A percentage of total spend can reward inefficiency rather than penalise it |
| Certification and audit rights | Determines how hard it is to challenge a figure you think is wrong |
Apportionment deserves particular attention. A method based on rateable value can shift dramatically after a business rates revaluation, through no change in your own occupation at all.
What landlords can and cannot recover
The general position is that only costs genuinely incurred in providing the services described in the lease are recoverable, and only to the extent the lease’s charging provisions allow. Common areas, structural repairs, insurance, and building management typically feature. Improvements, as opposed to repairs, are a frequent flashpoint, because a landlord replacing a working system with a better one may be improving the building at the tenants’ expense rather than simply maintaining it.
Management fees are worth scrutinising closely. A fee expressed as a straight percentage of total service charge expenditure gives a managing agent no incentive to control costs, since a higher bill means a higher fee.
A dispute that illustrates the risk
A small design agency in Islington took a five year lease on an office floor with a service charge described only as “a fair proportion of the landlord’s costs of maintaining the building.” No cap, no defined apportionment method, no sinking fund disclosure.
In year two, the landlord replaced the lift system entirely rather than repairing it and charged the full cost through the service charge. The tenant’s share came to just under £14,000, more than the office’s annual rent increase for that period. There was no clear contractual basis to challenge whether this was repair or improvement, because the lease wording was too vague to argue either way. The dispute settled for a reduced contribution after several months of correspondence, but a clearer lease would have avoided the argument entirely.
Challenging a service charge you believe is wrong
Start by requesting the supporting invoices and the certified accounts. Many leases require the landlord’s accountant to certify the figures, and that certificate is often expressed as conclusive, so read the wording carefully before assuming you can simply dispute the number later.
Where the lease incorporates the RICS code, you have a stronger basis to request transparency and to challenge unreasonable costs. Where it does not, your options depend entirely on the specific wording of the service charge clause, which is exactly why our commercial lease solicitors in London review this clause before anyone signs, not after a dispute arises.
Keep every invoice, demand and query in writing from day one. That discipline matters as much here as in any other property dispute, a point our guide on building an evidence file that stands up in court sets out. If a dispute does reach court, our explainer on how civil claims are allocated between tracks and our note on recent court and tribunal fee changes are useful background.
What this means at renewal
Service charge liability does not reset itself favourably just because you are renewing. Under the Landlord and Tenant Act 1954, the terms of a renewed lease reflect current market practice unless you negotiate otherwise, and landlords sometimes use renewal as an opportunity to tighten the service charge wording in their own favour. Our guide on renewing a business lease under the 1954 Act covers the wider renewal process and the deadlines that matter.
If arrears build up around a disputed service charge, the position can escalate toward forfeiture or a possession claim, so our landlord and tenant eviction services and our note on documenting rent arrears properly are worth reading alongside this. Where personal guarantees sit behind the lease, our post on when a guarantee can be challenged sets out the same principles that apply in a commercial context. Mixed use buildings with residential and commercial service charges running side by side raise particular complications for our housing disrepair solicitors in London to unpick on the residential side. Where a lease is inherited as part of an estate, our probate solicitors in London can advise on the liabilities that come with it.
Frequently asked questions
Can a landlord charge whatever they like for service charges?
Only what the lease allows, calculated as the lease specifies. Without a cap or the RICS code incorporated, there is little external constraint on the amount, though costs must still relate to services actually provided.
Is a service charge cap standard in commercial leases?
No. Caps are negotiable and far from universal, particularly in older leases or where a landlord has strong bargaining power.
What is a sinking fund and should you want one?
A reserve built up over time for major future costs like roof replacement. It smooths your cash flow but means you pay in advance for work that may not happen for years.
Can you refuse to pay a service charge you disagree with?
Generally no, not without risking forfeiture. The usual approach is to pay under protest while formally challenging the figure.
Get the lease reviewed before you commit
Service charge clauses read as boilerplate and rarely are. Send us the draft lease and any service charge accounts you have been given, and we will tell you what you are actually agreeing to pay and where the risk sits. Speak to our solicitors in North London on 020 3581 9293 or email info@atalawsolicitors.com.