Challenging the Status Quo: Why Tenants Must Scrutinise Service Charges More Closely

Landlords (or their managing agents) are often late issuing budgets—sometimes not until well into the service charge year. If that’s your experience, you’re not alone; this happens in around 50% of cases.

Equally, landlords are often late issuing final certificates, particularly when tenants are due rebates because actual costs came in under budget. Explanations and commentary on costs may also be poor or entirely lacking, with little validation of the apportionments used. Crucially, tenants may have only a limited time after the certificate is issued to challenge the reported expenditure—if they can challenge it at all without incurring additional costs.

If you’re a busy FD or property director of a tenant business, this often gets put on the to-do pile—then forgotten or simply accepted. Best practice dictates that budgets should be provided no later than one month before the service charge year begins, final certificates issued within four months of year-end, and a further four months allowed for tenants to review the costs. However, beware of any specific timings stated in your lease, as these can take precedence and prevent future challenges.

The impact of poor landlord administration on a business can be significant:

• You are unable to budget in advance for rising costs.
• Your landlord may already be committing to and incurring new costs before you’ve even received the budget—let alone had a chance to challenge it.
• You are losing money. Tenants are often overcharged without realising it, inadvertently funding costs that should be the landlord’s responsibility—diverting funds that could be used to grow their own business.

As if poor admin weren’t bad enough, one of the standout areas for overcharging in 2024 was site management costs. These are rising sharply, particularly in London, and often include elements of the managing agents’ responsibilities that should already be covered under their management fees. Why? Because those fees should be fixed. So not only is the administration poor, but landlords are charging more for it, too!

Also beware of M&E (mechanical and electrical) costs. Some landlords opt for inclusive maintenance contracts, yet still incur and pass on added costs that should not be charged. Repair costs should be accounted for separately from replacements. With upcoming MEES regulations around building energy performance, some landlords are choosing to upgrade rather than repair or replace plant and fabric. Capital costs—if shown—are usually substantial and can come as a shock. But are you even liable under your lease terms? Is there a more cost-effective, compliant alternative?

With professional advice, these costs can be reviewed for their validity—both under your lease and the RICS Code of Practice—potentially allowing significant reductions to be negotiated. If you’re unsure whether you’re being charged correctly, it’s wise to get advice.

Our dedicated team of building surveyors and FM engineers can review your lease and quickly benchmark your service charge costs. High charges and anomalies can then be challenged with your landlord, often leading to meaningful rebates and reductions in future service charge costs.