The service charge demand: what a commercial tenant can actually challenge
It arrives as a certificate with a figure on it and looks final. It is an account of how a contractual mechanism has been applied, and accounts can be wrong.
Problems, in order · Part of Outsourced General Counsel
Dinmore Bell reads the lease against the service charge certificate, identifies what the landlord may actually recover, recalculates the apportionment, and runs the challenge and the correspondence with the managing agent under its own name. Measurement, valuation and condition evidence come from instructed surveyors; VAT treatment from the business’s tax advisers.
The demand arrives once a year, usually as a single page with a figure on it and a longer document behind it that nobody reads. It is called a certificate, or a statement, or a reconciliation. It looks final. It is not.
A commercial service charge is a contractual mechanism, not a bill in the ordinary sense. Everything the landlord may recover, and everything you are obliged to pay, is set by the lease you signed. The certificate is the landlord's account of how that mechanism has been applied. Accounts can be wrong, and frequently are.
Start with the lease, not the demand
The instinct is to argue about the number. The number is the last thing to look at.
Open the lease and find three things.
What the landlord may spend on. There will be a list, or a general sweeping-up clause, or both. The list is exhaustive unless the lease says otherwise. If an item on the certificate does not fall within it, it is not recoverable, however reasonable the spend was.
How the cost is apportioned. A fixed percentage, a floor-area calculation, a "fair proportion" determined by the landlord's surveyor. Each behaves differently. A fixed percentage is easy to check and hard to argue with. A "fair proportion" is a judgement, and a judgement can be tested.
What the machinery requires. Many leases set out a process: an estimate before the year, an on-account demand, a certificate within a stated period after year end, sometimes a right for the tenant to inspect vouchers and records. Those steps are conditions of the mechanism, not courtesies.
Everything that follows comes out of those three answers.
The five places money is usually found
Items outside the list. Improvements dressed as repairs is the classic. Replacing a plant item at the end of its life with a better one may be sensible management, but if the lease permits repair and maintenance and not renewal or improvement, the tenant is not paying for the upgrade. The same goes for costs of letting or selling the building, marketing the estate, and works to parts of the building you have no right to use.
Apportionment drift. Floor areas change. Units are subdivided, a mezzanine is added, a neighbouring unit is taken back by the landlord. Percentages set at the start of a lease are often still being applied years after the building they described stopped existing in that form. Empty units are a particular flashpoint: unless the lease says otherwise, the landlord generally cannot spread a void unit's share across the paying tenants.
Caps, exclusions and side letters. Service charge caps agreed at the time of letting have a habit of disappearing from the landlord's managing agent's system when the agent changes. So do concessions given in a side letter. If you negotiated one, produce it.
Machinery not followed. Certificates issued years late. On-account demands raised without the estimate the lease requires. A "fair proportion" certified by nobody in particular. Whether a procedural failure defeats the charge depends entirely on how the clause is written, but it is always worth knowing before you pay.
Sinking and reserve funds. If the lease does not permit the landlord to collect a reserve, the landlord cannot collect one. If it does, the money should be held and applied as the lease says, and you are entitled to ask whether it has been.
Ask properly, and ask early
The single most effective step costs nothing: a written request to inspect the supporting invoices and records, made within whatever window the lease allows.
Do it in writing, name the clause you are relying on, and set a date. Most managing agents respond, and the response itself is informative — a well-run estate produces the file, and an estate that cannot produce the file has usually not been reconciling it either.
Pay the undisputed part while you do it. Withholding the entire charge over a disputed portion hands the landlord an argument about arrears and, in some leases, engages remedies you do not want engaged. Pay what is plainly due, identify what is not, and say so in the same letter.
What Dinmore Bell does with this
Dinmore Bell reads the lease against the certificate, builds the challenge, and runs the correspondence with the managing agent under its own name. That means the abstraction of every service charge clause across the estate, a line-by-line comparison of the certificate to what the lease actually permits, the inspection request and the follow-up, the apportionment recalculation where areas have moved, and the negotiation to a credit or a revised certificate.
Where the same landlord or agent runs several of your sites, the same error usually runs through all of them, and the recovery is worth multiplying.
What Dinmore Bell does not do is treat this as a one-off. The reason service charges drift is that nobody holds the dates: the estimate that should arrive before the year, the certificate that should arrive after it, the inspection window that closes quietly. Those dates go into the contract register with everything else, and the challenge happens in the window rather than eighteen months late.
Where a specialist is needed
Valuation and measurement are surveyors' work. Where the argument turns on floor areas, the condition of plant, whether works were repair or renewal, or what a reasonable cost for particular works would have been, a building surveyor or measured survey does the heavy lifting and their evidence is what carries the point.
If the matter goes to court or to a formal determination, it is conducted by lawyers with rights of audience in that forum, instructed and managed by Dinmore Bell.
The VAT treatment of a service charge, and of any credit or refund, is a question for the business's accountants or chartered tax advisers.
The habit that prevents it
The tenants who pay the least are not the most combative. They are the ones who do the same three things every year: read the estimate when it arrives, ask for the records within the window, and check the apportionment against the building as it stands today rather than as it stood at completion.
That is an hour or two a year per site. The demand that arrives next year will already look different.
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.
Common questions
- Can I refuse to pay a service charge I think is wrong?
- Pay the part that is plainly due and withhold only what you are disputing, in writing, with reasons. Withholding the whole charge hands the landlord an argument about arrears and, depending on the lease, can engage remedies you would rather not engage.
- Am I entitled to see the invoices behind the certificate?
- That depends on the lease. Many commercial leases give the tenant a right to inspect supporting records within a stated window. Make the request in writing, cite the clause and set a date — and note the window, because it closes quietly.
- Can the landlord charge me for improvements?
- Only if the lease permits it. Where the clause covers repair and maintenance but not renewal or improvement, an upgrade is not recoverable however sensible the spend was. The line between repairing something and replacing it with something better is where most of the argument sits.
- Do I have to pay a share of empty units?
- Generally not, unless the lease says so. A void unit’s share is the landlord’s to bear in most arrangements, and spreading it across the paying tenants is one of the more common apportionment errors.
- What if the certificate arrives years late?
- Whether a late certificate defeats the charge turns entirely on how the lease is drafted — some make the timetable a condition, others do not. It is worth establishing which yours is before you pay, not after.
More: Problems, in order
All insights →When a supplier goes under owing you goods
Administration is a change of control, not a pause, and the administrator has no duty to finish your order. What decides your recovery is a narrower question than most buyers expect: on the day, did the goods belong to you?
The contract auto-renewed and nobody noticed
The notice window is the operative term, not the length of the contract. What a business can realistically do once the window has closed, and how a register stops it happening twice.
The service charge on a second site: what to cap before you sign
It arrives quarterly, it gets paid, and on one site nobody notices. On two it compounds, because the same drafting sits in both leases and neither was read at the point it could still have been changed.