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Service Charges in Commercial Leases

Reasons to choose Wilson Browne

A case has recently been decided in favour of the landlord with the judge noting that the differing proportions assigned to various tenants had no impact on the landlord as the landlord made no financial profit from the service charge.

However in current times with many tenants struggling, it is difficult to see how a landlord is not financially advantaged by allocating a higher proportion of the service charge to a tenant it feels is more likely to pay.

The terms in the lease were that the tenant was to pay a “due” proportion of the service charge which was a “fair proportion to be determined by the landlord or the landlord’s surveyors….”

The court decided that the obligation was on the tenant to show that the landlord’s decision was irrational and the tenant had been charged an unfair proportion. On a practical basis for landlords this means that provided they keep evidence for how they arrived at the allocation it will be extremely difficult for a tenant to successfully challenge the allocation.

The case was also interesting as the allocation to a sinking fund was challenged. The tenant here tried to argue that there should not be any contributions to the sinking fund to repair/replace the goods lift as the goods lift was currently working. The court decided that this was exactly the point of a sinking fund – to build up a fund that was available for a time when things such as the goods lift were not working.

This case is good news for landlords and harder news for tenants already in leases. For tenants negotiating new leases in the current climate you would have thought landlords may have to accept fixed percentages, and service charge caps.

For more information, please call the team at Wilson Browne, or complete our online contact form, and we will be in touch as soon as possible.

Nina Wilson

Posted:

Nina Wilson

Partner

Nina is a Solicitor and Partner of almost 20 years experience advising clients on commercial property law. A Legal 500 recognised Lawyer, Nina has acted in multi-million pound acquisitions and development agreements.