Service charges in commercial property

A service charge may not mean that all the costs incurred by the landlord in providing a service are recoverable. Seek specialist advice to identify costs that might fall outside the service charge provisions when valuing the property.

Professional advisers need to be informed of current practice and legislation relating to the management and administration of service charges in commercial property to ensure they are acting in their clients' best interests and providing adequate advice.

Rent review specialists should also seek advice as an onerous service charge liability and any ongoing disputes may have a negative impact on rental value.

This section is maintained by Peter Forrester of Peter Forrester SCCS Ltd.

 COVID-19 update

 

RICS has produced guidance to mitigate issues faced during the COVID-19 pandemic: RICS advice on service charges during the COVID-19 pandemic.

 

In addition, the Ministry of Housing, Communities and Local Government (MHCLG), in consultation with various industry bodies, has produced a Code of Practice for commercial property relationships during the COVI-19 pandemic which contains the following further advice in respect of service charges:

 

'Service and Insurance Charges

 

It is important that buildings continue to be ensured and safely-maintained so that they are ready to support the economy’s recovery after the COVID-19 crisis, so any service charge and insurance charge payable under the lease is not profit-making, and needs to be paid in full. Recognising the impact this may have on tenants’ finances, in relation to service charges:

 

  1. These should be reduced accordingly where the lack of use of a property has lowered the service charge costs incurred;
  2. Conversely, it is acknowledged that in some cases there may be additional service costs required, e.g.  in order to operate a building which complies with health and safety requirements in the context of COVID-19, or recommissioning where buildings are reopened
  3. Landlords should ensure that service charge costs are reduced where practicable and consistent with providing best value for occupiers.
  4. Where possible, the frequency of tenant service charge payments should be spread over shorter periods
  5. Where there is a known net reduction in overall service charge due to lack of use of a property (taking into account any additional COVID-19 related costs), this reduction should be passed on to tenants as soon as possible ahead of the end of year reconciliation in order to help with cash flow and business viability;
  6. Landlords should ensure that all management fees reflect the actual work carried out in managing the services and the service charge during the COVID-19 crisis.
  7. Any solution the parties reach in relation to service charge should take account of the RICS Professional Statement Service Charges in Commercial Property, 1st edition, and of all RICS guidance in relation to service charges and COVID-19.'

 

 

Related content

RICS standards and guidance: Service charges in commercial property

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RICS standards and guidance: Service charges and tenant alterations