The principle of service charges is simple
The landlord procures stated services for the benefit of all tenants, pays a fair amount for them, apportions the costs in a reasonable manner and receives an appropriate fee for doing so. However, the reality can be more complex.
For this reason, the Royal Institution of Chartered Surveyors (RICS) publish a Professional Standard document called Service Charges in Commercial Property. This sets out in detail the approach to be taken by members of the RICS when managing service charges and communicating with tenants.
A second edition of this standard has just been published. Much of the detail remains unchanged from the first edition. The main changes are less use of ‘should’ and more use of ‘must’, greater clarity and guidance on lease drafting to reduce disputes, which is to be welcomed.
It will come into effect from 31 December 2025
This means it will apply to service charge periods commencing after this date, so year-end reconciliations under the new standard will not start to arrive until 2027.
In the meantime, here are my tips for reviewing and challenging service charge expenditure:
Budgeting: Know when the service charge period is. This is usually annual and the landlord should (a) issue a service charge budget at least one month before the start and (b) send a recommendation within four months of the year end. Make a diary note and chase the landlord if these documents not received.
Check the maths: Mistakes are made in even the most professionally run service charges. Do a simple maths check when you receive the year end reconciliation and raise any questions with the managing agent.
Repair not enhance: Generally, lease service charge clauses will allow for costs of maintenance, but not improvement. That said, replacement can be the most effective form of repair and be a legitimate service charge item. Look out for potential improvements when visiting stores and reviewing service charge documentation and ask questions.
Withhold selectively: Most leases will require tenants to pay the service charge in full and without deduction. However, it is not unreasonable to withhold a disputed element of the service charge provided that you (a) pay the undisputed sum and (b) tell the landlord why you are withholding part.
Collaborate: Contact other tenants in the shopping centre, particularly if they also happen to be charity retailers. A landlord or managing agent will often be more responsive if the same issue is being raised by many tenants.
There is much service charge expertise available within the Charity Retail Association. Join the CRA property group or myself for initial help and advice.
Justin Plumpton
justinplumpton@gmail.com
