Scope of Service Charge
Whether a particular item of expenditure falls within the service charge provisions. Landlords sometimes attempt to recover costs that are not expressly covered by the lease — our solicitors identify and challenge these.
Service Charge Solicitors
Expert legal advice for landlords and tenants on commercial and residential service charges — disputes, reasonableness challenges, certification, recovery and Leasehold Valuation Tribunal applications.
Service Charge Disputes & Advice
Service charges — the payments made by tenants to cover the cost of maintaining, repairing and insuring a building — are a frequent source of dispute between landlords and tenants in both commercial and residential property. Disputes arise over whether particular items of expenditure are recoverable under the lease, whether costs are reasonable, whether the landlord has followed the correct consultation procedures, and whether the service charge has been properly certified.
Legal Merchant's specialist solicitors advise both landlords and tenants on all aspects of service charges — from advising on what costs can be recovered, to challenging inflated demands, to enforcing payment of undisputed service charges.
Service Charges Must Be Contractually Recoverable. A landlord can only recover through the service charge what the lease expressly permits. Even if a cost is reasonable, it cannot be recovered if the lease does not provide for it. Our solicitors scrutinise lease provisions carefully to identify what is — and is not — recoverable.
Commercial Service Charges
What Can Be Included in a Commercial Service Charge?
Commercial service charges typically cover:
- Maintenance and repair of common parts (lifts, stairways, car parks, landscaping)
- Building insurance premiums
- Management fees
- Cleaning of common areas
- Security and CCTV
- Utilities for common areas (lighting, heating)
- Reserve or sinking funds for future major works
- Compliance with statutory requirements (health and safety, fire safety)
What is recoverable depends entirely on the service charge clause in the individual lease. Our solicitors advise on the interpretation of service charge provisions in commercial leases and the RICS Code of Practice for Service Charges in Commercial Property, which sets out best practice standards.
Common Commercial Service Charge Disputes
Reasonableness of Costs
Even where an item is recoverable in principle, the cost must be reasonably incurred. Our solicitors challenge excessive or unnecessary expenditure and advise on the evidence needed to establish unreasonableness.
Certification Disputes
Many leases provide that the landlord's accountant or surveyor must certify the service charge, and that the certificate is conclusive or final. Our solicitors advise on how to challenge a certificate and the circumstances where it can be set aside.
Sinking Funds
Whether contributions to a reserve or sinking fund are recoverable under the lease and what happens to accumulated funds when a lease is assigned or expires. Advice on the treatment of sinking fund balances on lease expiry.
Residential Leasehold Service Charges
Residential service charges in long leasehold properties are governed by the Landlord and Tenant Act 1985 and associated legislation, providing substantial protection to residential leaseholders:
Reasonableness Test
Residential service charges are only payable to the extent that the costs are "reasonably incurred" and, where works or services are of a standard, they are of a reasonable standard. The First-tier Tribunal (Property Chamber) — formerly the Leasehold Valuation Tribunal — has jurisdiction to determine whether residential service charges are reasonable.
Consultation Requirements (Section 20)
Before carrying out major works costing more than £250 per leaseholder, or entering into a long-term qualifying agreement, a landlord must follow a statutory consultation process under section 20 of the LTA 1985. Failure to consult limits the landlord's recovery to £250 per leaseholder per set of works (regardless of actual cost). Our solicitors advise on the correct consultation procedure and challenge landlords who have failed to consult.
Right to Challenge Before the Tribunal
Leaseholders have the right to apply to the First-tier Tribunal to challenge service charges on grounds of reasonableness, both before and after payment. The tribunal can determine what is payable, and costs are generally not awarded in residential service charge proceedings. Our solicitors prepare and present applications to the tribunal on behalf of both landlords and leaseholders.
Section 21A Statements of Account
Landlords are required to provide leaseholders with annual statements of account for service charges, supported by a summary of rights and obligations. Failure to do so can delay the landlord's ability to recover service charges. Our solicitors advise landlords on compliance and leaseholders on enforcing their rights to information.
Service Charge Recovery for Landlords
Where tenants refuse to pay undisputed service charges, landlords can recover them through:
- County Court money claim for unpaid commercial service charges
- Section 146 notice and forfeiture (where the service charge is a sum due under the lease)
- First-tier Tribunal determination (for residential) followed by County Court enforcement
- Charging order over the leaseholder's property (once judgment obtained)
Note: For residential properties, before a landlord can forfeit a lease for service charge arrears, the amount must first be determined (either agreed or determined by the tribunal/court) and the tenant must not have paid within 14 days of demand following determination.
Frequently Asked Questions
For commercial tenants, withholding service charges is risky — even disputed service charges are generally a debt due under the lease, and withholding them may give the landlord grounds for forfeiture. The safer approach is to pay the charges under protest and pursue a claim for recovery or a declaration that they are not properly due. For residential leaseholders, there is greater protection — you can challenge charges before the First-tier Tribunal and the landlord's ability to forfeit for residential service charges is more restricted.
Section 20 of the Landlord and Tenant Act 1985 requires landlords of residential properties to consult leaseholders before carrying out qualifying major works (costing more than £250 per leaseholder) or entering into qualifying long-term agreements (costing more than £100 per leaseholder per year). The consultation involves two (sometimes three) stages of notice, giving leaseholders the opportunity to nominate contractors and make observations. If the landlord fails to follow the procedure, the amount recoverable from each leaseholder is capped at £250 for major works (or £100 per year for long-term agreements), regardless of the actual cost. The landlord can apply to the tribunal for dispensation from the consultation requirement if it is just and equitable to do so.
Yes. Residential leaseholders have a statutory right under the LTA 1985 to request a summary of service charge costs and to inspect (and take copies of) supporting documents. The landlord must provide the summary within one month of a request and allow inspection of documents within two months. Commercial tenants may have similar rights under the lease itself (inspection rights vary considerably between leases). Failure to comply with a residential leaseholder's request for information can be a criminal offence.
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