Service Charge Considerations And Trends For Tenants

• Published date: 12 June 2023
• Subject Matter: Real Estate and Construction, Real Estate, Landlord & Tenant - Leases
• Law Firm: Myerson Solicitors LLP
• Author: Myerson Solicitors LLP

Refurbishment of Common Parts

A key point to look out for in service charge expenditure is the cost of "renewing" or "refurbishing" items in the common parts of the landlord's estate.

There is a risk that Landlords could use these provisions as a means of upgrading their estate at the expense of the tenants.

Such expenditure could be quite disproportionate to the tenant's interest in the estate, especially if they have a relatively short-term lease.

It is therefore advisable to request that such heads of expenditure be either deleted entirely or limited to circumstances where items are "beyond economic repair".

Careful attention also needs to be paid to whether drafting the service charge provisions allows the landlord to refurbish the estate simply because they consider it desirable or only in circumstances when there is a genuine need for repairs.

Service Charge Caps

To provide certainty for tenants, landlords may agree to apply a cap on the service charge payable under a lease.

However, in recent times there has been increasing pushback from landlords in respect of service charge caps.

Soaring energy costs, inflation and labour costs have largely driven this shift.

Landlords do not want to be liable for the excess costs if the service charges exceed the agreed service charge cap.

Tenants may be exposed to significant service charge increases from year to year where no cap is in place, and there may be some debate as to what is a "fair and reasonable" service charge proportion in the circumstances.

If the tenant's proportion of service charge cannot be agreed between the parties, then the lease will often provide for the dispute to be referred to an independent expert for determination.

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