When a property is occupied by multiple tenants, the tenants may be required to pay a service charge. The service charge reimburses the landlord for expenditure on items that benefit the building or estate as a whole.
Our new Service Charge Demands and Service Charge Statements will help landlords of both commercial and residential properties to administer the service charge regime for properties in their portfolio.
What does Service Charge cover?
Common service charge items include repair and decoration of the building, and heating, lighting and maintenance of common areas such as corridors, staircases and gardens. A service charge may also cover the cost of staff (e.g. security, receptionist, caretaker), the provision of facilities such as washrooms and kitchens, and the maintenance of a car park.
How is Service Charge calculated and paid?
The lease, tenancy agreement or licence will set out what services are to be provided and how the service charge is to be calculated and paid. The service charge regime may be formal or “ad hoc”.
A formal service charge regime requires the landlord to produce an estimate of the forthcoming year’s service charge expenditure. Each tenant’s proportion of the expenditure is then calculated and the tenants pay this amount, usually in instalments during the year. At the end of the year a final statement is produced. If the tenant has overpaid, a refund is given (or the amount owed to the tenant is put towards the next year’s service charge). If the tenant has underpaid, the tenant must make a balancing payment.
An “ad hoc” service charge may be more appropriate if the landlord is only providing minimal services, e.g. occasional maintenance to the building. Here, the landlord invoices the tenants for their proportion of any expenditure as and when it is incurred.
Our Estimated Service Charge Statement can be used to set out the anticipated expenditure each year. The Final Service Charge Statement can be used at the end of the year to record the actual amounts spent. The Service Charge Demand is for the landlord to send to each tenant when service charge is due. The documents are all in easy-to-use Word or Excel spreadsheet format.
The contents of this Newsletter are for reference purposes only and do not constitute
legal advice. Independent legal advice should be sought in relation to any specific