Quick Answer
A service charge is how a landlord recovers the cost of running, maintaining and insuring the shared parts of a building, such as the structure, roof, common areas, lifts, cleaning, security and management, from the tenants who benefit. What’s included depends on the lease: a landlord can only recover costs the lease allows, and only what was actually and properly spent, with no profit. For commercial property, RICS’s second edition of its service charge professional standard took effect on 31 December 2025. It requires budgets at least a month before the service charge year, year-end accounts within four months, a clear apportionment matrix, separate bank accounts and fixed management fees rather than percentages. Tenants should usually pay the undisputed part of a charge and challenge the rest.
Why Service Charges Cause So Many Arguments
Few things in commercial property spark as many disputes as the service charge. Tenants see a bill go up and want to know why. Landlords have spent money on the building and need it back. When the paperwork is poor, both sides end up frustrated.
Most of these disputes are avoidable. They come down to three things: what the lease says, how clearly costs are budgeted and explained, and whether the money is handled properly.
Think of a service charge like a shared kitty for a holiday house. Everyone chips in for the bills. It works brilliantly when there’s a clear budget, receipts and a fair split. It falls apart when one person can’t explain where the money went.
At Rory Mack Associates, our property management team prepares service charge budgets, collects charges and produces year-end accounts for multi-let commercial buildings and residential blocks across Staffordshire, Cheshire and Shropshire. This guide explains how service charges should work.
What Is a Service Charge?
In a building with more than one tenant, nobody can repair “their” bit of the roof or clean “their” part of the reception. So the landlord looks after the shared parts and recovers the cost from the tenants, usually through a service charge paid alongside the rent.
The lease is the rulebook. It sets out:
- What services the landlord provides
- Which costs can be recovered
- How each tenant’s share is calculated
- When and how the charge is paid
If a cost isn’t covered by the lease, the landlord generally can’t recover it, however reasonable it seems.
What’s Usually Included
Every lease is different, but a typical commercial service charge covers:
| Category | Examples |
| Repairs and maintenance | Roof, structure, external walls, car parks, shared plumbing and drainage |
| Shared areas | Cleaning, lighting, heating and decoration of receptions, stairs, corridors and toilets |
| Building services | Lifts, fire alarms, sprinklers, shared heating and air conditioning, servicing contracts |
| Compliance | Fire risk assessments, asbestos management, legionella checks, electrical testing |
| Security | Security staff, CCTV, access control |
| Grounds | Landscaping, gritting, waste collection |
| Utilities | Electricity and water for shared areas |
| Insurance | Often charged separately, but sometimes through the service charge |
| Management | A fee for administering the service charge |
| Reserve or sinking fund | Saving for big future costs, such as a roof replacement, if the lease allows |
What Shouldn’t Be Included
Some costs normally sit with the landlord. Watch out for these appearing in a service charge budget:
- Improvements, not repairs: upgrading the building beyond what’s needed to maintain it, unless the lease allows it or the tenants agree
- Initial construction or inherent defects: putting right problems that were there from the start
- Building safety remediation: costs of fixing historic safety defects covered by the Building Safety Act 2022
- Costs of empty units: the landlord should pay the share for any vacant space
- Letting, rent collection and rent review costs: these are the landlord’s own costs
- Profit: a landlord can’t make money from providing services
- Costs from another tenant’s breach: if one tenant caused damage, they should pay, not everyone
How Your Share Is Worked Out
This is called apportionment. The most common methods are:
- Floor area: your share matches your percentage of the lettable space
- Weighted floor area: adjusted for factors such as ground floor shops using the lifts less
- Use-based: where some tenants use a service more than others, for example separately metered utilities
- Fixed percentage: a set share written into the lease
Whatever the method, it should be fair, consistent and clearly explained.
The RICS Service Charge Standard
For commercial property, the benchmark for good practice is RICS’s professional standard, Service charges in commercial property. The second edition took effect on 31 December 2025, replacing the version that had applied since 2019.
It’s mandatory for RICS members and regulated firms. It doesn’t override a lease and isn’t law, but it’s widely used as the benchmark for reasonable practice, so it carries real weight in any dispute.
The key requirements
| Requirement | What it means |
| Follow the lease | Only costs the lease allows can be recovered |
| Actual costs only | Only properly incurred costs, with no profit for the landlord |
| Budgets on time | Issued at least one month before the service charge year begins, with explanatory notes |
| Accounts on time | Year-end accounts within four months of the year end, with an explanation if they’re late |
| Clear apportionment | An apportionment matrix showing how each tenant’s share is calculated |
| Separate bank accounts | Service charge money, including reserve funds, held separately from the landlord’s own money |
| Interest credited | Any interest earned goes back into the service charge |
| Income disclosed | Commissions, rebates and discounts must be disclosed, and tenants should benefit from them |
| Fixed management fees | Fees set annually as a fixed amount, not a percentage of spending, and only for managing the service charge |
What’s new in the 2025 edition
- Management fees: percentage-based fees are out. Fees should be fixed and cover only service charge administration.
- Sustainability: improvements to the building’s fabric or equipment, such as energy-saving measures, may be included if agreed with tenants and backed by a cost-benefit analysis.
- Building safety: costs of remedying defects covered by the Building Safety Act 2022 are not recoverable.
- Metering: installing extra meters to share costs more fairly is a legitimate cost if it benefits tenants.
- Disputes: stronger encouragement of mediation and other alternatives to court, and clarity on paying first and disputing later where the lease requires it.
If You Disagree With a Service Charge
For tenants:
- Check the lease. Is the cost actually recoverable, and is your share calculated correctly?
- Ask for the evidence. Request the budget, accounts, invoices and apportionment matrix.
- Pay what isn’t in dispute. Withholding the whole charge can put you in breach of the lease. Many leases now require you to pay first and challenge later.
- Raise it in writing. Explain clearly which items you dispute and why.
- Use mediation if needed. It’s quicker and cheaper than court, and the RICS standard encourages it.
For landlords and managers:
- Issue budgets and accounts on time, with clear explanations
- Consult tenants before major works or new services
- Correct any errors quickly once a dispute is resolved
- Make sure the lease’s service charge clauses are modern and clear at every new letting or renewal. Our guide to types of commercial lease explains how service charges fit in.
Service Charges in Residential Blocks
Flats and residential estates work on the same principle, but with much stronger legal protection for leaseholders:
- Reasonableness: under the Landlord and Tenant Act 1985, residential service charges must be reasonable, and the work must be of a reasonable standard.
- Consultation on major works: before major works costing any leaseholder more than £250, or long-term contracts costing more than £100 a year each, the landlord must formally consult leaseholders. Otherwise the amount they can recover may be capped.
- The right to challenge: leaseholders can ask the First-tier Tribunal (Property Chamber) to decide whether charges are reasonable.
- More transparency on the way: under the Leasehold and Freehold Reform Act 2024, private landlords will have to use prescribed service charge demands, accounts and annual reports from 1 November 2027.
Freeholders and residents’ management companies rely on careful service charge management to stay compliant and keep leaseholders onside. Our block management team handles budgets, collection, consultation and accounts for residential blocks and estates. For more on why it matters, see how effective block management can improve your property investment.
A Real-World Example
Picture a business park in Stoke-on-Trent with eight industrial units, each let to a different tenant. For years, the landlord has sent out a single invoice at the end of each year with little explanation. Tenants are fed up, and two are withholding payment.
A new managing agent takes over and starts by checking every lease. They find the leases allow recovery of estate roads, landscaping, security and shared drainage, but not the cost of re-roofing an empty unit, which had been included.
For the next year, the agent issues a budget two months before the year starts, with a short note explaining each line and an apportionment matrix based on floor area. Money is held in a separate account, and the management fee is fixed, not a percentage. The empty unit’s share is paid by the landlord.
At year end, the accounts arrive within three months, with a small surplus credited back to tenants. Both withheld payments are made, and the disputes are settled without a single solicitor’s letter.
How Rory Mack Associates Can Help
Our RICS-regulated property management team manages service charges for multi-let commercial buildings and residential blocks across Stoke-on-Trent, Staffordshire, Cheshire and Shropshire. We:
- Prepare clear budgets and year-end accounts on time
- Collect service charges and hold the money in separate client accounts, protected by Client Money Protection
- Organise planned and reactive maintenance with vetted contractors
- Consult leaseholders on major works in residential blocks
- Act for landlords and tenants in service charge disputes
For landlords, good service charge management means full cost recovery and fewer arguments. For tenants, it means transparency and fair treatment.
Summary
A service charge recovers the cost of running and maintaining the shared parts of a building from the tenants who benefit, but only for costs the lease allows, and only what was actually spent. Typical items include repairs to the structure, shared areas, building services, compliance, security and management. Improvements, empty units, letting costs and historic building safety defects usually shouldn’t be included. For commercial property, the RICS standard that took effect in December 2025 sets clear deadlines for budgets and accounts and requires separate accounts and fixed management fees. Residential leaseholders have extra legal protection, with new transparency rules arriving from November 2027.
Need help managing service charges, or querying one? Talk to our property management team on 01782 715725.
This guide is general information and not legal advice.
Frequently Asked Questions
What is usually included in a commercial service charge?
Typically the repair and maintenance of the building’s structure and roof, cleaning, lighting and heating of shared areas, lifts and building services, fire safety and other compliance checks, security, landscaping, shared utilities, insurance and a management fee. The lease decides exactly what can be included.
Can a landlord make a profit from a service charge?
No. Under the RICS standard, landlords can only recover the actual, properly incurred cost of providing services. Any commissions, rebates or discounts must be disclosed, and tenants should benefit from them. Any interest earned on service charge money goes back into the service charge.
When should I receive my service charge budget and accounts?
For commercial property managed under the RICS standard, the budget should be issued at least one month before the service charge year starts, and the year-end accounts within four months of the year end. If they’re late, the manager should explain why.
Can I refuse to pay a service charge I disagree with?
It’s risky to withhold the whole amount, as it may breach your lease. Pay the part that isn’t in dispute, ask for the evidence behind the rest and raise your concerns in writing. Many leases require tenants to pay first and challenge afterwards. Mediation is usually quicker and cheaper than court.
Do tenants pay service charges on empty units?
No. The landlord should pay the share for any vacant units. Tenants should only pay their own share, worked out using the method set out in the lease, such as floor area.
