Service charges are a necessary part of a tenancy

Legal

WHETHER it’s a business tenancy of a ground floor lock-up shop, the whole or part of one floor of a multi-let building or industrial premises on a purpose-built business park, you can expect to have to pay a service charge in addition to your rent.  It needn’t be a ‘hidden cost’ but that depends on the premises you are taking up and how organised (or not) your landlord is.

How does it arise? In the case of a lock-up shop, with perhaps residential flats above, you may be paying for the cost of the repair and maintenance of the main structure – roof, exterior walls, foundations, gutters and downpipes and perhaps windows and doors and frames, redecoration and shared service media. In these circumstances, it is likely to be ad hoc – the Landlord will charge you, as and when repairs or maintenance are needed. It is possible you could be faced with quite a bill if the roof needs repairing or replacement. In these situations your landlord is unlikely to have built up a sinking fund over a period of years or to have regularly surveyed the building and taken professional advice about what is needed and the likely cost. When you took up your lease of the ground floor, you might have thought my advice to arrange a building survey not just for the premises you intended to occupy but also the rest of the building (albeit in broad terms) was unnecessary. However, in this scenario, I am sure that you now can see the value in doing so.

Offices in a multi-let building should be professionally managed, usually with the landlord employing managing agents. There are their fees to be paid but you should find the building is better managed. You may be paying for heating and lighting of the common areas, including lifts, fire and burglar alarm assistance, together with car parking arrangements, security barriers and external lighting etc.

For the industrial premises on the business park, the service charge should relate only to external areas i.e. private accessways and pavements, landscaping, lighting and security.  These are also likely to be managed on a professional basis.

What enquiries should you make about service charge? Where the building or business park is managed professionally, the managing agent should be able to supply the last two and three years accounts and a budget for this year. You are likely to have to pay quarterly in advance (at the same time as you pay rent) based upon the managing agents’ estimate i.e. this year’s budget. At the end of the financial year, the managing agents will make arrangements for a full account to be made. If they underestimated, you will have to pay a shortfall; usually on demand. If there is a surplus, it will be carried forward. If this information is not available to you up front, then it is reason to wonder whether things are being dealt with properly and that you might find substantial service charge to pay later.  

This often occurs when new managing agents “take the reins” and find that matters have been allowed to slide.

And so to the New Year, when next time I will look at letting periods, break clauses and renewal.

Contact Borneo Martell Turner Coulston on 01604 622101 or visit www.bmtclaw.co.uk