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Wake-up call: Protect yourself from excessive service charges

24 June 2011
Wake-up call: Protect yourself from excessive service charges

If your business is in part of a building, you are probably well versed in disagreements over running costs. Legal expert Debra Kent explains how tenants can protect themselves from excessive service charges

THE PROBLEM I have just received my service charge bill. The amount is more than expected. What can I do?

THE LAW Effectively, what you have to pay for is set out in the lease. There is no statutory requirement that landlords can only recover certain costs from their commercial tenants although there are time limits on claiming service charges from former tenants.

However, because of the increasing number of disputes in this area, the Royal Institution of Chartered Surveyors (RICS) brought out the RICS Code for Service Charge in Commercial Property in 2006. The second version of the code was released on 4 May.

EXPERT ADVICE What should be in the lease?

There should be a definition of the services that can be charged for, as well as a method of calculating the tenant's share of the overall costs. The landlord should be legally obliged to provide certain services, for example, maintenance of the building and shared areas.

The lease should also include the payment dates, deal with the preparation of service charge accounts and detail how disoutes should be handled.

The services A key part of the lease is the list of services that the tenant must contribute towards, such as maintenance of the structure, lifts, utilities systems and common areas; insurances; security; and cleaning and decoration.

Contentious services There should also be a list of those items the tenant is not required to pay for such as those relating to improvements to the building.

Other expenditure which tenants would prefer not to contribute towards includes the costs of:

â- Repairing defects and other expenses caused by the defects.
â- Agents' fees for breaches by other occupiers.
â- Rent collection.
â- Empty units in the building.

Sweeper and variation clauses Landlords will try and include a "sweeper" clause where the tenants must pay for any additional items that the landlord provides. Ideally, you should not agree to this.

Tenants should also be wary of clauses which entitle the landlord to vary the services from time to time.

Disputes, transparency and deadlines

There should be a procedure in the lease so that you can query any aspect of the service charge, and for the landlord to properly respond and to resolve any dispute. There may be time limits for you to question any charge. You should not agree to these if that does not allow you time to check the accounts and sort out any argument.

Service charge code The code sets out guidelines for service charges and their operation. It is not legally binding but many landlords agree to comply with it. It can be helpful to tenants even if its provisions are not reflected in the lease.

CHECK LIST â- Ensure the lease specifies those services to be provided and paid for (and those that are not), the basis of charging and dispute resolution mechanisms.
â- Try and agree a service charge cap or for the landlord to seek your approval for discretionary costs.
â- Limit or remove variation and sweeper clauses.
â- Service charge statements should clearly set out all of the expenses and the services, in an easily readable format.
â- Always check the statements to see that the landlord is complying with the lease - and not charging for "extras".
â- Do not be afraid to question the landlord and to seek further information.
â- Share information with fellow tenants - tenants acting together get more attention from their landlords!
â- Check to see if your landlord has signed up to the code and if that can help you.

BEWARE Be careful to comply with any time limits or procedures for questioning the service charge.

The best way to protect your position is to negotiate in the lease a detailed list of the services you must pay for, as well as the ability to investigate and dispute charges.

Debra Kent is a partner at Charles Russell

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