Key Takeaways
- In commercial leases, service charges are primarily governed by the terms of the lease itself. There is no statutory cap or equivalent residential protection.
- Common disputes involve charges for items not covered by the lease, apportionment of costs across multiple tenants and excessive or unjustified expenditure.
- A landlord can only recover service charges that are expressly permitted by the lease. Anything beyond those terms can be challenged.
- The RICS Code of Practice for Service Charges in Commercial Property (updated December 2025) provides important guidance on best practice.
- Disputes are usually resolved through negotiation, adjudication (under the RICS scheme) or the courts.
- Tenants should request a detailed breakdown of service charge expenditure annually and audit the accounts carefully.
Service charges are a routine feature of most commercial leases, particularly in multi-let buildings, shopping centres and managed business parks. They’re the mechanism by which a landlord recovers the costs of maintaining, insuring and managing the building from the tenants who occupy it.
In theory, service charges are straightforward. In practice, they are one of the most common sources of dispute between commercial landlords and tenants. Issues can arise over the scope of what can be charged, how costs are apportioned, the quality of the services provided or even the accuracy of the accounts.
How Commercial Service Charges Work
Unlike residential service charges, which are heavily regulated by statute, commercial service charges are governed almost entirely by the terms of the lease. The specific wording of the lease will dictate:
- What the landlord can charge for
- How those charges are calculated and apportioned
- When they must be billed
- What rights the tenant has to inspect accounts
Tenants typically pay a service charge budget (an estimated annual sum) in advance, with a reconciliation at the end of the year showing actual expenditure. If actual costs exceed the budget, the tenant pays the shortfall. If they’re less, the surplus is carried forward or credited.
Updated in December 2025, the RICS Code of Practice for Service Charges in Commercial Property sets out best practice standards for landlords and managing agents. The Code isn’t legally binding but is widely followed, and departure from it may be relevant in a dispute.
Common Causes of Service Charge Disputes
Charges for Items Not Covered by the Lease
A landlord can only recover service charge costs that are expressly permitted by the lease. If the landlord seeks to include expenditure that falls outside the scope of the service charge provisions, the tenant can challenge those items. For example, capital works when only maintenance costs are recoverable, or costs for areas not within the demised premises.
Incorrect Apportionment
In multi-let buildings, the total service charge is divided between tenants, usually on the basis of floor area or a fixed percentage set out in the lease. Disputes arise where the apportionment is wrong, whether that’s through error or because the building’s tenant mix has changed. Or they can arise where the landlord has retained an empty unit and isn’t contributing the appropriate share.
Excessive or Unjustified Expenditure
Even where expenditure falls within the permitted scope of the service charge, tenants can challenge whether the cost was reasonable. A landlord may face a challenge on the grounds that the expenditure was unreasonable if they:
- Commission works at an inflated price
- Fail to obtain competitive tenders
- Retain contractors on terms that aren’t in the interests of the building
Management Fees
Many service charge disputes involve management fees. That’s the fee charged by the landlord or their managing agent for administering the service charge. Tenants often challenge these fees as excessive or as a percentage mark-up that was not properly disclosed. Courts have been willing to scrutinise management fees and reduce them where they are disproportionate to the services provided.
Lack of Transparency and Accounts
The RICS Code requires landlords to provide detailed annual accounts within four months of the year end, with a certified audit. Where a landlord fails to provide proper accounts, or where accounts do not explain the basis of expenditure in sufficient detail, tenants may have grounds for disputing the charges or seeking an order for disclosure.
Rights to Challenge Service Charges
Commercial tenants have a right to challenge service charges through the courts if they believe charges aren’t recoverable under the lease or that expenditure was unreasonable. The burden is on the landlord to demonstrate that the charge falls within the terms of the lease. If they can’t, the tenant doesn’t have to pay it.
Before going to court, tenants should formally request a detailed breakdown of service charge expenditure. Where the lease permits, they should exercise any audit rights to inspect underlying invoices and contracts. Many disputes are resolved at this stage when the landlord can’t justify a particular item of expenditure.
The RICS Dispute Resolution Service
Where a commercial lease provides for independent adjudication of service charge disputes (or where both parties agree), the RICS Dispute Resolution Service offers a specialist adjudication and expert determination process. It’s typically faster and cheaper than going to court, and can be particularly effective for technical disputes about the scope or calculation of service charges.
Withholding Service Charges
While a tenant may have legitimate grounds to dispute a service charge, unilaterally withholding payment carries significant risks. Most commercial leases treat non-payment of service charges as a breach of a tenant’s covenant, potentially giving the landlord grounds to forfeit the lease or take other enforcement action. A tenant who disputes a charge should seek legal advice before withholding payment. In some cases, paying under protest and then pursuing a claim for recovery is the safer approach.
Practical Steps for Tenants Facing a Dispute
- Review your lease carefully. Identify exactly what the landlord is and is not permitted to charge for.
- Request a full breakdown of service charge expenditure and ask for supporting invoices if the breakdown is insufficient.
- Check the accounts against the RICS Code to identify any departures from best practice.
- Write formally to the landlord setting out your concerns and requesting a response. This creates a paper trail and may prompt resolution.
- Take legal advice before withholding any payment. The risks of doing so without advice are significant.
- Consider whether adjudication through the RICS scheme is available and appropriate for your dispute.
Speak to a Commercial Property Solicitor Today
Osbourne Pinner’s commercial property litigation team advises landlords and tenants across London and Harrow on service charge disputes. This ranges from reviewing lease provisions and advising on recoverable costs through to adjudication and court proceedings. We also advise tenants who are entering new leases and want to negotiate appropriate protections around future service charge liability.
Please note that this article is for informational purposes only and does not constitute legal advice. We always recommend speaking to a qualified solicitor for advice tailored to your specific circumstances.
If you have a dispute about service charges in your commercial lease, our property litigation team is here to help.
We offer a free 30-minute consultation to discuss your situation. You can speak with us via video call or visit our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester. To arrange your consultation, call 0203 983 5080, email [email protected] or complete the form below.
