Business tenants – Handling a commercial property service charge dispute

The most frequent question I am asked by new clients when I first take on a service charge instruction is “should I pay this invoice or withhold payment of it?”
Business tenants are often faced with this dilemma for the first time when the service charge on their commercial property suddenly rises.

To pay or not to pay that is the question.

Withholding payment of service charge is not to be taken lightly. Where service charge is “reserved as rent” then non-payment could result in the landlord taking one of the following nasty measures

• Instructing bailiffs

• Forfeiture of the lease

• Issuing proceedings

• Statutory demand

Each one of the above will likely result in costs being recovered via the lease from the Tenant and can result in the loss of the business premises or the business itself.

So what is my advice to a new client faced with an increased service charge?Well as always it depends on the specifics of the situation facing the tenant.
A tenants strategy for dealing with a large invoice and whether “to pay or not to pay” has to take into consideration not only what the landlord can do but also what the landlord is likely to do given the circumstances.
The course of action a landlord or their agent chooses to pursue will depend on a number of things not limited to the following:

1) Terms of the lease.

2) Age of debt.

3) Size of debt.

4) Landlord relationship with the tenant.

5) Strength of the tenant.

6) Landlord objectives or strategy for the particular premises.

7) Who the landlord is.

8) Landlord obligations to other parties.

9) The situation on the estate or in the area.

10) The specific circumstances surrounding the debt and their confidence in the validity of the charges.

Only after the above is analysed can a comprehensive and well thought out strategy be built and implemented for dealing with the issue.

Simply not paying without taking steps to protect yourself is never a good idea.

Author: Jamie McNeil - Bath based chartered surveyor and director of McNeil Commercial Limited
Date: 21st January 2012

Service charges in commercial property 2012

Don't turn a blind eye in 2012 to service charges on commercial property.

Have you ever wondered whether your business is paying too much service charge on your commercial property? If you are reading this article then perhaps you have thought about it but did not know what to do.

If you are a business owner or a finance director it is likely to be your responsibility to sign off the service charge payment to the landlord every three months. The buck also stops with you when the landlord issues a request for payment of a balancing service charge.  If you have any concerns about signing off a service charge invoice then shouldn’t you do something about it?

On the 1^st October 2011 The Royal Institution of Chartered Surveyors (RICS) issued the second edition of a code of practice for Service charges in commercial property.

You can download a copy and have a read I have posted a link at the bottom of this article.  It has the status of a guidance note so does not override the terms of your lease.  Another thing to do is to look closely at the terms of your lease to check the landlord is invoicing you in accordance with those terms.

This is where things become tricky. Unless you have a lot of experience in dealing with commercial property leases i.e.are a chartered surveyor or a lawyer specialising in commercial property then it is unlikely that you will be able to:

• Interpret all of the applicable lease terms fully and accurately.
• Establish how much of a case you have to legitimately challenge your landlord over individual costs contained within the service charge.
• Form a strategy for challenging the landlord and execute it successfully.

I am not saying that it is impossible for you to do this. It is just difficult and time consuming. Imagine for example a surveyor trying to do your job. He could muddle through part of it but he would certainly make mistakes some of which could be costly. Your time is quite frankly better spent on doing what you do best and not embarking on a new time consuming project in an area outside of your core expertise.

If you want more information then read my article below: Service charges - Top Ten Tips for Tenants.

Alternatively you can just turn a blind eye and continue to pay the landlord whatever service charge he invoices.

Useful resources:

http://www.mcneilcommercial.co.uk/property-service-charge--top-10-tips-for-tenants

http://www.servicechargecode.co.uk