Service Charges in Commercial Property: How to Avoid Hidden Costs & Protect Your Bottom Line
Tassia O'Callaghan
8 minute read
On the hunt for a new office space — or maybe making a big move from your current one?
It’s exciting to make the move to a fresh, new environment, whether you’re expanding rapidly or downsizing to streamline operations.
But there’s one key detail that often sneaks up on business owners: service charges in commercial properties.
These extra fees can quickly eat into your bottom line if you don’t know exactly what you’re signing up for — when you're already juggling a million other things during an office move.
While you might have your eye on that perfect monthly rent figure, service charges can throw a serious spanner in the works if you're not careful.
We've seen plenty of businesses get caught out by unexpected fees that weren't factored into their initial budgets.
In this guide, we'll cut through the jargon and break down everything you need to know about commercial property service charges.
We'll show you what these charges typically cover (spoiler: it's more than you might think), how to calculate your likely costs before signing on the dotted line, and what to do if you think you're being overcharged.
If you're a first-time office tenant, this information is absolutely crucial.
And even if you're a seasoned pro who's moved offices before, stick around — the commercial property landscape is always evolving, and there might be some valuable nuggets here to help protect your bottom line.
By the time you’ve finished reading, you’ll be well-equipped to dodge hidden costs and enter your new lease agreement with confidence.
What are service charges in commercial property?
Service charges are the extra fees you pay on top of your rent to keep everything running smoothly in the parts of the building everyone shares.
In a nutshell, they’re your contribution to keeping hallways clean, lifts functional, and outdoor areas looking professional.
When you're renting office space, you're not just paying for the four walls you occupy.
You're also chipping in for all those essential services that make the building functional and pleasant to work in.
This includes everything from keeping the lights on in shared spaces to making sure the elevators are working reliably.
We typically see these charges ranging anywhere from 15% to 35% of your base rent, depending on the building's age, location, and amenities.
That's why we always recommend looking at the total occupancy cost — rent plus service charges — rather than just focusing on the headline rent figure.
Here's what you're typically paying for:
Everyday essentials: Building management and staff, cleaning of common areas, security systems and personnel, utilities for shared spaces
Long-term maintenance: Building repairs and improvements, HVAC system maintenance, landscaping and exterior upkeep, emergency systems testing
When you're looking at spaces through Tally Workspace, we make sure you see a clear breakdown of these charges upfront.
We'll show you the historical service charge data for the building, help you understand any planned increases, and point out any unusual items that might need discussion with the landlord.
Remember, while you can't completely avoid service charges, you can make sure they're fair and transparent.
A good lease will clearly spell out what's included, how charges are calculated, and what controls are in place to prevent unexpected increases.
Looking to understand the service charges for a specific building? We can help decode them so you know exactly what you're signing up for.
Why service charges matter to business owners and operations teams
Service charges can make or break your workspace budget.
While your rent stays fixed, service charges often change yearly — and these changes can significantly impact your bottom line.
Poor service charge management leads to real business problems: broken facilities that frustrate your team, shabby common areas that put off clients, and unexpected costs that blow your budget.
And well-managed charges mean a workspace that enhances your business rather than holding it back.
It's crucial to understand what you're paying for.
You need clear visibility of costs, from daily cleaning to long-term maintenance funds.
Being informed helps you spot excessive charges, negotiate better terms, and avoid surprises that could affect your cash flow later on.
How to calculate service charge for commercial property
Service charge calculations don't need to be complicated.
Here's a step-by-step guide to figuring out what you'll likely pay:
Get your space measurements: Find your usable square footage from your lease documents and note any exclusive use areas like private terraces.
Calculate your proportion: Get the building's total lettable area from the landlord and divide your space by the total building area — his gives you your percentage share (e.g., 2,000 sq ft / 10,000 sq ft = 20%).
Find the total building service charge: Ask for the current annual service charge budget, request previous years' actual costs for comparison, and add VAT if applicable (usually 20%).
Calculate your share: Multiply the total building service charge by your percentage (for £100,000 total × 20% = £20,000 annual charge). then divide by 4 for quarterly payments.
Factor in additional costs: Add any floor-specific charges, include your share of the reserve/sinking fund, and consider any service charge cap negotiations.
Final check: Compare your calculated figure with landlord's estimate, looking out for any unusual items or discrepancies — consider having a surveyor verify the calculations.
Still not sure how to calculate your service charge for commercial property? Get in touch, we’re happy to help!
What to look for in a service charge clause
A clear service charge clause in your lease protects both landlord and tenant by setting out exactly what's expected.
Here are the essential elements you need to check and understand:
Service definitions Your lease should explicitly list every service the landlord provides and you pay for. Look for specific details about cleaning frequencies, security coverage hours, and maintenance schedules. Vague terms like "reasonable" or "appropriate" services can lead to disagreements later.
Calculation methods The formula for working out your share needs to be crystal clear. Your lease should state whether it's based on floor area, headcount, or another metric. Watch out for phrases that give the landlord discretion to change the calculation method.
Cost controls Search for any limits on how much charges can increase each year. Some office leases include percentage caps or link increases to inflation. Check if the landlord needs tenant approval for expenses above certain thresholds.
Dispute resolution A good lease explains exactly what happens if you disagree with charges. Look for timeframes for raising disputes, required documentation, and whether mediation is mandatory before legal action.
Transparency rules: Your lease should guarantee your right to see annual budgets and quarterly estimates, year-end reconciliations, supporting invoices and contracts, competitive quotes for major works, and detailed breakdowns of all charges. The best leases also specify when and how this information must be provided — for example, requiring budgets 30 days before the start of each service charge year.
Tips for negotiating service charges in your lease
Negotiating service charges isn't just about getting the lowest price — it's about establishing clear, fair terms that protect your business long-term.
While many tenants focus solely on the base rent during lease negotiations, service charges can significantly impact your total occupancy costs.
Here's how to negotiate them effectively:
Request historical data: Ask for three years of service charge records to identify patterns, spikes, and potential red flags before signing.
Lock in annual caps: Negotiate maximum yearly increases linked to inflation to prevent unexpected cost surges.
Define everything: Ensure your lease specifies exact cleaning schedules, security hours, and maintenance frequencies instead of vague terms like "regular" or "appropriate".
Secure tenant protections: Add clauses that exclude you from paying for vacant units, require competitive quotes for major works, and give you audit rights over service charge accounts.
Push for clear timelines: Get the lease to specify when you'll receive budgets, reconciliations, and major works notifications.
Join forces: Get involved with tenant committees and build relationships with other occupiers to strengthen your collective voice on service charge issues
Create contingency funds: Budget for 10-15% variance from estimated service charges to handle fluctuations.
Use Tally Workspace: We know office spaces, and we’ll do the negotiating for you, so you can focus on what matters: your business.
How to challenge commercial service charges
When service charges seem excessive, unclear, or don't match the quality of services provided, you have every right to challenge them.
But it's crucial to approach this process strategically and professionally.
Here's your roadmap for challenging commercial service charges when they don't seem right:
Step 1: Know your rights
Check your lease agreement first
Request detailed breakdowns of all charges
Ask for copies of invoices and contracts
Review service level agreements
Step 2: Document everything
Record all communication with your landlord
Take photos of maintenance issues
Keep a timeline of service delivery problems
Save copies of relevant emails and letters
Step 3: Build your case
Compare charges with similar properties
Identify specific items you're disputing
Calculate any overcharges
Gather evidence of poor service delivery
Step 4: Start the discussion
Write a formal email to your landlord
Be specific about your concerns
Reference relevant lease clauses
Suggest reasonable solutions
Set clear deadlines for responses
Step 5: Get professional help (if needed)
Consult a commercial property surveyor
Consider joining forces with other tenants
Get expert analysis of service charge accounts
Step 6: Formal dispute resolution
Propose mediation
Use any dispute resolution procedures in your lease
Consider arbitration before court action
File a claim as a last resort — most landlords prefer resolving issues amicably. Court action should be your last resort, not your opening move.
Common commercial property service charge disputes
Let's talk about service charge disputes — they're more common than you might expect in commercial property.
While a well-managed service charge system should be transparent and fair, disagreements can arise when there's a mismatch between tenant expectations and landlord delivery, or when communication breaks down.
These disputes aren't just minor irritations — they can seriously impact your business operations and bottom line.
A contentious service charge situation can strain landlord-tenant relationships, create unexpected costs, and even affect your ability to run your business effectively if building services deteriorate.
The good news? Many disputes can be prevented through clear communication and proper understanding of your lease terms.
When they do occur, most can be resolved without resorting to legal action. Knowledge is your best defence — understanding common dispute areas helps you spot potential issues early and take appropriate action.
Here are the most common service charge disputes that landlords and tenants face, and what you can do about them:
Poor value for money: Your service charges keep rising but the building quality isn't improving. Maybe the lobby still looks tired despite high maintenance fees, or the air conditioning is constantly breaking down. First step? Request a detailed breakdown of where your money's going and compare it with similar buildings in the area.
Hidden capital improvements: Your landlord decides to upgrade the building's entire HVAC system and passes the cost to tenants through service charges. But hang on — are you paying for basic maintenance or a significant upgrade? Most leases distinguish between the two, and you might not be liable for major improvements.
Surprise bills: You've budgeted based on estimates, but the year-end reconciliation hits you with a massive extra payment. This often happens when landlords underestimate costs or don't communicate changes effectively. The solution? Regular reviews of the service charge budget and questioning any significant variances early on.
Lack of evidence: Your landlord increases charges but won't provide receipts or explanations for the costs. You're entitled to see evidence of expenditure — most leases require landlords to maintain proper records and provide annual statements. Don't hesitate to demand this documentation.
Empty space charges: The building is half empty, but remaining tenants are shouldering all the service charges. This might not be fair — many leases include provisions about how vacant space costs should be handled. Check your lease and challenge any unfair allocation.
Management fee hikes: The property management fee suddenly jumps 20% with no explanation or improvement in service. These fees should be reasonable and market-competitive. Ask for justification and compare with industry standards.
Double charging: You spot items in your service charge that should be covered by your rent or the landlord's insurance. This happens more often than you'd expect. Go through your lease carefully — it should clearly state what's included in your rent versus service charges.
Service charges might seem complex at first, but they don't have to be a headache.
Armed with the right knowledge and approach, you can navigate them confidently and protect your business from unexpected costs.
The key takeaway? Be proactive.
Don't wait for issues to arise — start strong by understanding your obligations, negotiating fair terms, and keeping detailed records from day one.
Want to make your next office move smoother? Tally Workspace helps businesses like yours decode commercial property service charges before you sign.
Our office space experts know exactly what to look for in lease agreements and can spot potential issues before they become problems.
Whether you're signing your first lease or managing an established property portfolio, professional advice is always worth the investment.
Our team is ready to help you navigate service charges, negotiate better terms, and ensure you're getting real value for your money.
