Utilities and service charges you did not expect

Aug 29
3 min read

Updated: 3 days ago

Introduction

A tenant budgets for rent and treats everything else as minor. The first service charge demand arrives at a level nobody anticipated, followed by a further demand for a share of major works to the roof, and an energy bill on a rate nobody negotiated.

None of this is improper and all of it was foreseeable. Occupancy costs beyond rent are frequently a third or more of the total, service charge is commonly uncapped, and the tenant's ability to influence any of it is largely exercised before signing rather than afterwards. After signature you are a payer rather than a negotiator.

1. Utilities and service charges you did not expect belong in the budget from the start

The comparison that matters.

Total occupancy cost rather than rent. Two premises with the same rent can differ substantially once service charge, rates, utilities and insurance are included, and only the total is meaningful.

2. Ask for three years of service charge history

The most useful single request.

Actual figures for the last three years, showing what was spent and on what. A landlord who will not provide this is telling you something, and the figures reveal both the level and the volatility.

3. Find out whether the service charge is capped

Frequently not.

An uncapped charge means your exposure is unlimited and driven by decisions you do not control. A cap, or a cap on increases, is negotiable and is one of the more valuable amendments a tenant can obtain.

4. Check what can be recovered through it

The scope is where the surprises live.

Whether major works, sinking funds, management fees and improvements can be charged. A contribution towards replacing a roof or a lift is where the largest unexpected demands originate.

5. Understand how it is apportioned

Not always by floor area.

The basis of apportionment between tenants, whether it changes when the building is partly empty, and whether you pay a share of costs for areas you do not use. Vacant units can shift cost onto remaining tenants.

6. Check the utility arrangements before you commit

Both supply and contract.

Whether you can choose your own supplier, whether there is a landlord-arranged supply at a set rate, and what capacity is available. Businesses with significant power requirements should verify capacity rather than assume it.

7. Look at the energy performance of the building

A cost, not a certificate.

Insulation, heating, glazing and age determine what you will spend on energy, potentially for years. A cheaper rent in an inefficient building is frequently not cheaper at all.

8. Query demands you do not understand

You are generally entitled to detail.

Service charge demands should be supported by an account of the expenditure, and tenants can usually request it. Unchallenged demands are paid year after year without anybody establishing what they cover.

9. Budget for the timing as well as the amount

Cash flow, not just cost.

Service charge is often demanded quarterly in advance with a balancing charge afterwards, and major works demands can arrive with little notice. Knowing the pattern prevents a genuine cash problem.

Talk to existing tenants in the building before signing. They will tell you what the service charge actually runs at, how the landlord manages the building, and whether large demands have arrived recently, and none of that appears in the marketing particulars.

Conclusion

Budget on total occupancy cost rather than rent, because the additional items are substantial.

Request three years of actual service charge figures, establish whether the charge is capped and negotiate one if it is not, check what can be recovered including major works and sinking funds, understand the apportionment basis and what happens when units are empty, verify utility arrangements and available capacity, assess the energy efficiency of the building as an ongoing cost, query demands you do not understand, plan for the timing of quarterly and balancing charges, and speak to existing tenants before signing.