Handling Commercial Service Charge Disputes

Service charge disputes are common and usually come down to a few recurring issues. Handling them well protects both your recovery and the tenant relationship.

The usual flashpoints

• Transparency: the tenant cannot see how a cost was incurred or apportioned.
• Recoverability: the tenant says an item is not covered by the lease, for example an improvement dressed up as a repair.
• Apportionment: the tenant challenges their percentage share.
• Reserve and sinking funds: disputes over whether the lease allows them and how they are held. See sinking and reserve funds.

How to handle a challenge

• Provide itemised accounts and the apportionment matrix, and point to the lease clauses that permit each cost.
• Deal with genuine errors quickly, and explain the rest.
• Encourage the tenant not to withhold more than the genuinely disputed sum while it is resolved.
• If it cannot be settled, consider alternative dispute resolution, such as the RICS scheme, before court.

Prevention beats cure

Most disputes are avoided by running the service charge to the RICS code: budget up front, certified accounts, clear apportionment. Open books and prompt answers keep the relationship intact and the money flowing. See commercial service charges.

What causes most service charge disputes?

Transparency, whether an item is recoverable under the lease, apportionment, and reserve or sinking funds.

Should a tenant withhold the whole service charge in a dispute?

No. The guidance is that a tenant should not withhold more than the genuinely disputed sum.