in Commercial Property Management
Understanding Service Charges
Service charges are an essential part of commercial property management.
But they can often be a source of confusion and disputes between landlords and tenants. Whether you own a commercial property or lease one, understanding how service charges work is crucial to ensuring fair and transparent management.
Here’s what you need to know about service charges—what they cover, how they’re calculated, and how to avoid common disputes.
What Are Service Charges?
Service charges are costs incurred by a landlord to maintain and manage a commercial property, which are then passed on to tenants. These charges cover essential services that keep the building operational, safe, and well-maintained.
What do service charges cover?
Typical service charge expenses may include:
• Repairs & Maintenance – Routine upkeep of communal areas, external structures, lifts, HVAC systems, and security features.
• Cleaning & Waste Management – Regular cleaning of shared spaces, window cleaning, and waste disposal.
• Utilities & Facilities – Electricity, heating, and water supply for common areas.
• Health & Safety Compliance – Fire safety systems, security services, and compliance with legal building regulations.
• Management Fees – The cost of professional property management services to oversee the property’s upkeep and administration. These fees are just a small part over the overall Service Charge.
How are service charges calculated?
Service charges are typically divided among tenants based on:
• Floor area occupied – Larger tenants pay a higher proportion.
• Fixed percentage agreements – Pre-agreed proportions set out in the lease.
• Equal division – Each tenant pays the same amount, regardless of space used (common in smaller buildings).
Charges should always be reasonable, transparent, and proportionate to the services provided.
Common service charge disputes, and how to avoid them.
Disagreements can arise when tenants feel they are overpaying or when unexpected charges appear. Here’s how landlords and tenants can prevent disputes:
• Clarity from the Start – Ensure service charge clauses are clearly defined in the lease agreement.
• Transparent Budgeting – Provide a breakdown of expected charges before the billing period.
• Regular Reporting – Keep tenants informed about how their service charge contributions are being used.
• Fairness & Reasonableness – Charges should align with industry benchmarks and reflect the level of service received.
A well-managed service charge system ensures commercial properties run smoothly while keeping costs fair for all parties. Whether you’re a landlord setting service charges or a tenant paying them, understanding the details can help avoid conflicts and create a more positive leasing experience.
If you need expert guidance on service charge management, Shepherd Property Consultants is here to help.
If you’d like more information on Service Charges, to discuss how we would approach the management of your property, or to discuss anything related to commercial property, get in touch today.
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