What are service charges in a Commercial lease
Service charges are levied by Jersey commercial landlords to recover the costs they incur in providing services to demised premises in Jersey.
The way in which the service charge is organised is set out in the tenant’s lease or tenancy agreement. The charge normally covers the cost of such matters as general maintenance and repairs, insurance of the building and, where the services are provided, central heating, lifts, lighting and cleaning of common areas etc.
The charges may also include the costs of management by the landlord or by a professional managing agent and for contributions to a reserve fund.
Details of what can and cannot be charged by the landlord and the proportion of the charge to be paid by the individual tenant will be set out in the lease.
Fixed or variable service charges?
Landlords want to make sure they recover all their costs every year. Most service charges are based on the actual or estimated cost of the services and thus vary from year to year. These are known as variable service charges. Depending upon supply and demand it may be possible to negotiate fixed charges.
Service charge structure
The lease will dictate the format of the charge. It will usually give the dates of the service charge period and how often payments are to be made. More often than not the service charge period is a year, but payments may be required generally half-yearly or a quarter-yearly basis
The lease will usually set out the percentage or proportion of the service charge payable by the tenant, but sometimes the lease just stipulates a ‘fair’ or ‘just’ proportion. If different groups of occupiers benefit from different services, there may be provision for more than one percentage or proportion to be paid.
The lease will say whether advance payments are to be made and, if so, whether they are based on the previous year’s cost or an estimate of the cost in the year to come, for example.
Limits on service charges
Service charges can go up or down without any limit. When considering a commercial lease, it is important to find out what the current and future service charges are likely to be.
The power to recover service charges
The landlord’s power to levy a service charge and an obligation to pay it are governed by the provisions of the lease. The lease is a contract between the tenant and the landlord and there is no obligation to pay anything other than what is provided for in the lease.
The general principle of a lease is that the landlord is not obliged to provide any service which is not covered by the lease, and the leaseholder is not responsible for payment where there is no specific obligation set out in the lease.
It should generally be assumed that a service charge will be payable and will cover the repair and maintenance of the fabric of the building and the fittings, the lift or the boilers etc, as well as cleaning, lighting and maintenance of common areas. Other obligations depend on the scope of services provided. In some cases this is done simply by referring to the landlord’s costs in meeting his obligations, as set out in one of the schedules to the lease.
Where any doubt arises, reference should be made to the wording of the lease and legal advice should be sought.
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The information and opinion expressed in this briefing does not purport to be definitive or comprehensive and are not intended to provide professional advice. For specific advice, please contact Parslows, We are not responsible for, and do not accept any responsibility or liability in connection with, the content of this document or any reliance upon it