Commercial Service Charges: A Landlord Guide

In a multi-let building the service charge is how a landlord recovers the cost of running and maintaining the common and structural parts. Getting it right keeps tenants onside and protects your recovery.

What a service charge covers

Typical service charge costs include maintaining the structure and common parts, cleaning, security, lifts, communal heating, insurance of common areas, and management. What you can actually recover is governed entirely by the lease: you can only charge for what the lease permits.

The golden rules

• No profit: a service charge recovers cost, it is not a profit centre.
• Only what the lease allows: costs outside the lease's list of recoverable services cannot be passed on. See improvement vs repair.
• Apportion fairly: each tenant pays a fair and transparent share.

Budgets and accounts

Good practice, reflected in the RICS guidance, is to issue a budget before the service charge year, provide certified accounts after year end, and give tenants an apportionment matrix so they can see how their share is worked out. See the RICS service charge code.

Where disputes come from

Most disputes are about transparency, items tenants say are not recoverable, or apportionment. Running the service charge openly heads most of them off. See service charge disputes and, for larger schemes, sinking and reserve funds.

What can a landlord recover through a service charge?

Only what the lease permits, at cost with no profit, typically maintaining the structure and common parts, cleaning, security, lifts and management.

Can a landlord make a profit on the service charge?

No. A service charge recovers cost; it is not a profit centre.