Service Charge: The Devil in the Detail

It is the very reason you do not want to be seated in the vicinity of two lawyers at a dinner party; it is in our genetic make-up to obsess about the fine print’s fine print. However, I understand that many people tick the ‘I Agree’ box of various terms and conditions without much more than a cursory glance. On occasion, it can be because the language of the agreement is difficult to access. But, more often than not, people decide that their time is better spent elsewhere than fully considering the endless list of eventualities contained in the latest software update for a mobile phone.


Perhaps, it is understandable to make this decision when the consequences only relate to a relationship with a smartphone. However, if an agreement has an effect on your business, there should be no circumstances when your (or someone else’s) time should not be spent fully reviewing the details and implications of the agreement.


If you are negotiating an occupational lease, have you considered just two (of the many) reasons why you should consider asking Tughans to advise you? Firstly, it is our time spent pouring over every draft of the lease, rather than yours. But also, almost more importantly, with the benefit of our specialised expertise in Real Estate, we will not only advise you on what the lease contains, but also what it does not.


I appreciate that when negotiating the finer points of a lease, it may seem that the events being debated are never going to happen. But whether you believe it is the devil or God himself contained in the details, it is unlikely you will want to be in the situation to find out.


By way of an example, on entering a lease, a service charge may be payable to the landlord on top of the rent paid, to cover providing services to the premises. A tenant’s contribution will generally represent a percentage of the total cost to the landlord of providing the services to the entire building or development. However, it is imperative to understand how that percentage is calculated.


A landlord may request that a tenant’s contribution to the service charge to be the total cost of the services divided by the total number of tenants. This is an admittedly straightforward approach. However, consider the scenario of the last remaining tenant in a formerly fully tenanted development of 20 units. This unfortunate tenant will see their contribution increase from 5% to 100% of the cost to deliver services to a fairly substantial development. Is our hypothetical tenant’s business capable of being burdened with the extra cost?


Recent news from the high street reports the closure or administration of some of the most established retail names. This would indicate that margins can be very slim trading on the high street, even at the top. Therefore, without careful consideration of all the implications of a lease, including the calculation for service charge, a tenant cam expose itself to a potentially fatal expense.


If you are considering entering a lease, remember that it should be tailored to your business’ needs and the location of the premises. If you require any advice on entering a lease as a landlord or as a tenant, please contact our Real Estate department and we would be happy to discuss.


While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.