Service Charge Explained

Each time tenants view commercial properties, they will be presented with a service charge – a cost that can vary significantly from case to case. Some properties can quote a service charge of £15 per sq. ft., whereas other offices spaces come with no service charge at all.

So what does the service charge really consist of? Normally, this is the cost that the landlord requires for looking after and running the common parts of the building; cleaning of the common areas, lift maintenance, salary for the people working in reception and other maintenance.

The reason the service charge can fluctuate so much between different buildings is that the common parts can vary significantly from each office space, and the same goes for the services that are included. Offices with dedicated staff and other services such as for instance bike storage and communal showers have more facilities to maintain than a building without those amenities, and are therefore more expensive.

However, in some cases the charges can be quite costly without actually offering that many services. Eugene O’Sullivan, Managing Director at Morgan Pryce said: “When looking at service charges it is important to consider having a cap in place to protect yourself from any extraordinary future costs.”

There are two important factors when considering a service charge cap. Firstly, tenants should ask for information about the age of the building and M & E (mechanical and electrical systems). If the building and M & E systems are old, it is important to have a cap in case any of the equipment fails and needs to be replaced. Secondly, the previous three years of service charge budget should be looked into. Investigating the building replacement fund and the service charge history can make all the difference for the tenant’s decision and negotiation terms, as it provides insight into what the service charge agreement will consist of. 

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.