Navigating Commercial Lease Service Charges
This article was written for and published as original content in East Anglian Daily Times.
Understanding service charges
A service charge is a mechanism contained in a lease of part of a multi-let building or estate that allows the landlord to recover its costs of running that centre from the tenants.
During the grant of a new commercial lease, the service charge provisions are always heavily negotiated. The lack of statutory regulation for commercial service charges, compared to residential ones, allows the parties freedom to negotiate whatever service charge provisions they wish. These will either be settled at the outset during the Heads of Terms stage or by specialist Commercial Property solicitors, such as Thompson Smith and Puxon, during the negotiated amendments stage.
Negotiation is key
Seeking advice from a solicitor at an early stage can help you to find a path that would suit the situation and be acceptable to both parties: where the landlord’s focus may be on achieving a ‘clear’ rent, with all the expenses relating to the centre being paid by the tenants; and the tenants’ focus is on ensuring that only necessary repairs and maintenance costs form part of the service charge. Solicitors often negotiate caps on charges, define the scope of services, and include clauses to prevent excessive spending by landlords.
New RICs standards introduced
On 25 June 2025, the Royal Institution of Chartered Surveyors (RICS) published RICS Professional Standard, Service charges in commercial property (second edition) (2025 Professional Standard). Effective from 31 December 2025, the updated guidance aims to improve transparency, consistency and fairness in service charge management and is compulsory for all RICS-accredited professionals. It introduces clearer timelines for issuing budgets and year-end certificates and offers guidance for resolving disputes.
At Thompson Smith and Puxon, we anticipate that these professional standards will set requirements or expectations for RICs members and may be a relevant consideration if a managing agent is alleged to have been negligent in the performance of its management duties but they will not override the terms of a lease.
Implications in lease drafting
Your solicitor, during the negotiations, will carefully draft clauses covering service definitions, payment obligations, dispute resolution, and reserve funds. Each lease must be tailored to the specific property and parties involved.
If you would like to discuss any of the legal or practical considerations discussed in this article with Thompson Smith and Puxon, please contact Alex Butler-Zagni, Senior Associate Solicitor, on 01206 574431 or email enquiries@tsplegal.com