Service charges in a commercial lease: what a tenant can actually challenge

The rent is negotiated and the service charge is not, which is why over a ten-year term it is often the number that moves most. Three grounds decide almost every dispute, and disliking the total is not one of them.

Problems, in order · Part of Outsourced General Counsel

The rent is the number everybody negotiates. The service charge is the number nobody negotiates, and over a ten-year term it is frequently the one that moves most.

It arrives as a budget in advance, an on-account demand each quarter, and a reconciliation at the end of the year that either credits you or asks for more. Most tenants pay all three without reading any of them, because the lease says they must and because the alternative appears to be an argument with the landlord of a building they trade from.

That reading of the position is wrong in one important respect. The obligation to pay is real. The obligation to pay whatever is demanded is not.

What can a commercial tenant actually challenge?

Take those in order, because they are in order of how often they succeed.

Is it in the lease? A service charge clause is a list. It lists what the landlord may recover. Anything outside the list is not recoverable, however reasonable it sounds. Improvements dressed as repairs are the classic example: replacing a functioning system with a better one is usually an improvement, and improvement clauses are narrower than landlords remember. Marketing and promotional costs, management fees above what the clause permits, and the cost of remedying an inherent defect all belong in this category.

Is the apportionment right? Most leases fix your share by floor area, or by a fair proportion determined by the landlord's surveyor. Floor areas change. Units are split and combined. Vacant units mean somebody has to absorb the void, and it should not automatically be you. A fixed percentage in a lease signed in 2011 may bear no relation to the building as it now stands.

Was the cost properly incurred? This is the hardest of the three and the one tenants reach for first. It asks whether the landlord acted reasonably in incurring the expenditure, and it is answered with evidence rather than indignation: what was procured, on what terms, against what alternatives.

The professional standard sitting behind all of this

The current edition of Service charges in commercial property is the 2nd, published on 25 June 2025 and effective from 31 December 2025. RICS states that it sets mandatory requirements for RICS members and RICS-regulated firms, aimed at greater consistency and due diligence, and at uniformity, fairness and transparency in how service charges are managed and administered.

That matters for a tenant in a practical way that has nothing to do with litigation. If the managing agent is a RICS-regulated firm, they are working to a standard that expects budgets, reconciliations and transparency on a defined footing. Asking a question framed against that standard produces a different response from asking a question framed as a complaint. It is the difference between "this seems high" and "please provide the reconciliation and the apportionment basis".

Their own professional obligations, on RICS's standards and guidance hub, are a lever tenants routinely fail to use.

What to do when the reconciliation looks wrong

Do not withhold payment first. Withholding is the one move that converts a service charge question into a breach of covenant, and in a lease with a forfeiture clause that is not a proportionate risk to take over a disputed invoice.

Do this instead, in this order.

Ask for the detail, in writing. The certified accounts for the service charge year, the breakdown by cost head, the apportionment schedule showing every unit, and the invoices behind any head that has moved materially.

Read your own clause before you read their figures. The categories in your lease decide the argument. Half the items people query turn out to be recoverable, and half the items they never query turn out not to be.

Compare years, not budgets. Budget against actual tells you about forecasting. Actual against actual over three years tells you what is really happening in the building.

Put the specific challenge in writing, item by item. A letter that identifies four cost heads, the clause each fails under and the sum in dispute gets a substantive reply. A letter saying the charge is too high gets a holding response.

Keep paying the undisputed part. It preserves your position and removes the landlord's easiest answer.

Where a specialist is needed

Where a dispute reaches the point of proceedings, or where the argument turns on the construction of an unusual clause, we instruct solicitors and, on quantum, a chartered surveyor. Valuation opinion and reserved litigation work sit with them.

Where a building has a Building Safety Act dimension, remediation cost recovery is its own regime and is handled with specialist advice alongside.

What Dinmore Bell does with this

We hold the estate rather than the argument. Every lease abstracted, so the service charge clause, the cap if there is one, the apportionment basis and the reconciliation dates are recorded in one place rather than rediscovered each spring. The demands checked against the clause when they arrive, not eleven months later. The questions raised inside the window the lease allows.

For tenants and occupiers this is usually the difference between a service charge that is managed and one that is simply paid. It is the same discipline that decides what you owe at the end of a term, which we have written about in the dilapidations schedule and what you actually owe.

A business running this through an outsourced General Counsel function gets the leases read once and monitored thereafter, which is the only version of this that works across more than two sites.

The cap, and why the second site is where it bites

On a single site an uncapped service charge is an irritation. On a second and third it compounds, because the same uncapped exposure now sits three times over in a business whose margin was modelled on the first one.

A cap is negotiable at heads of terms and almost impossible to obtain afterwards. If you are signing this quarter, the two most valuable words you can add to the draft are a ceiling and a mechanism. If you signed three years ago, the reconciliation you are about to receive is the place to start.

Dinmore Bell provides an outsourced General Counsel function for founder-led businesses, owning work of this kind end to end rather than advising on it and handing it back.