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When a business owner enters a commercial lease, paying rent is an obvious expense. However, rent may not necessarily be the only cost in a commercial lease. Lease agreements may detail other costs associated with the lease, such as commercial service charges. This article will explain what a property service charge might consist of in a lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
What is a Service Charge?
A service charge in a commercial lease is a regular payment a tenant makes to cover any standard services a landlord might provide. It is an additional charge to the lease rent and protects the commercial landlord from the costs they incur in providing services.
A service charge will generally exist in a commercial lease for business premises that are part of a larger property. For instance, a tenant might have a lease in a multi-let commercial building, such as one floor in a large office building, and use shared facilities, like lifts or a communal rooftop. As these spaces need looking after, a service charge from tenants assists the landlord in maintaining them.
What Does a Service Charge Cover?
Service changes in a commercial lease can cover various areas. They are usually common or shared areas, such as:
- kitchen facilities;
- toilets;
- lifts
- break-out areas; and
- meeting rooms.
This charge might cover various elements depending on the needs of your specific building and your lease agreement. Below are some examples of what a commercial property service charge may cover.
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Repairs and Maintenance
If you have a service charge in your commercial lease, it will usually include repairs and maintenance of particular areas. Typically, a landlord is responsible for the repair and structure of the overall building, where they lease out multiple business premises or spaces within the building.
Additionally, service charges can go toward maintaining the outside of the property, including the following:
- garden;
- paths;
- roads; and
- car park.
Utilities and Staff
A service charge for a commercial lease will often include costs for utilities such as lighting and heating. There can be many separate leases for commercial premises within a large property, but the utility supply will apply to the whole building. Therefore, rather than having each individual business pay utilities directly to the utility company, the landlord would pay for the whole building and recoup the amount from their tenants.
Some commercial lease service charges may also include costs for certain staff. Such staff might include receptionists, door attendants or building managers.
Safety and Security
A further area a property service charge may cover is safety and security for the building. For example, the charge might go toward any security and risk management associated with the property.
The charge can also cover the costs a landlord bears to comply with any building safety duties. Landlords are under obligation via health and safety laws to provide equipment such as fire extinguishers and other safety equipment. Therefore, a commercial property service charge may include costs for these items.
Catch-All Clause
A service charge provision in a commercial lease may include a catch-all clause. This clause refers to additional charges the landlord may later want to include in a service charge as the commercial lease progresses. If the lease has this clause, the tenant allows the landlord to add items to a property service charge. However, any additions should be reasonable and necessary.
Key Takeaways
If you have a commercial lease, it may have a property service charge associated with it. This is a charge a commercial tenant pays for services the landlord provides for the property. A commercial property service charge can be flexible and go toward:
- repair and maintenance charges;
- utilities and staff; and
- safety and security.
If you need help drafting or reviewing your commercial lease agreement, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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