Summary: A landlord's entitlement to service charges for
costs incurred around lease termination depends on the accounting
and invoicing mechanics stipulated in the lease; the language of
the lease is decisive.
You should read this if you deal with asset or facilities
management of commercial real estate.
A landlord's entitlement to service charges for costs
incurred around lease termination depends on the accounting and
invoicing mechanics stipulated in the lease; the language of the
lease is decisive.
However, any attempt to recover the cost of work not performed
during the relevant accounting period is likely to fail.
In a recent case, the question was whether service charges could
be claimed where, over the years, the tenant had paid a provision
for future, major works, but those works had not been carried out
before the lease came to an end.
The case concerned a 1930s Art Deco Grade II listed building,
where the lease came to an end on 24 March 2010 and the then
current accounting period for service charges ended on 31 December
2010. After the lease had ended, the former landlord carried out
major works to the HVAC and M&E systems serving the building at
a cost of £1m. The works started in autumn 2010 and were
completed in 2011.
Only some of the sums paid by the landlord for the major works
qualified as costs actually incurred during the service charge
period up to 31 December 2010.
The critical issue was whether the service charge financial year
ended when the lease ended or did it continue until the following
Having examined the wording of the lease in the context of a
building occupied by more than one tenant, the judge concluded that
the service charge financial year ended on 31 December 2010. Thus
the cost of major works performed up to 31 December 2010 could be
included in the service charge.
At the same time the judge concluded that the amount recoverable
from the tenant should be apportioned to reflect the fact that the
tenancy ended on 24 March 2010.
What this lease required was a certified account for the year to
31 December 2010:
including major works costs actually incurred in 2010;
but excluding major works costs actually incurred in 2011;
including all other proper service charge costs.
Credit should have been given to the tenant for the full
provision for the major works costs paid by the tenant in the
The resulting figure should then be the service charge to be
apportioned to reflect the termination of the tenancy on 24 March
2010 (i.e. 83/365) with any overpayment of the service charge,
compared to provisional sums charged, to be repaid by the
Reference: Friends Life Management Services Ltd v A &A
Express Building Ltd  EWHC 1463 (Ch)
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