Commercial office leases and service charges. Anyone know their stuff re this?

Afternoon.

Long story short, I’ve been renting a small office on a ‘Tenancy at Will’ basis from my local authority since 9th January 2014.

The tenancy agreement included a rental amount, and states…

The Landlord hereby lets and the Tenant hereby takes the demised premises as a Tenancy at Will commencing of 9th January 2014 yielding and paying a rent to be calculated at the rate of £XXXX per annum inclusive of service charge.

…and…

The Landlord and the Tenant agree that:

5.1 the service charge included in the annual rent referred to is the Tenant’s fair proportion of each item of the service costs.

It also states…

5.3 the Landlord is to keep full records of the service costs and at least once a year is to send the Tenant an account setting out, for the period since the beginning of the tenancy period or the last account as the case may be:
(a) the amount of the service costs
(b) the service charge the Tenant is to pay
(c) the total of any interim payments the Tenant has paid
(d) the difference between the total interim payments and the service charge

However, I’ve genuinely never had any kind of notification which sets out or updates any of this information at any point in the (almost) 2 years that I’ve been a tenant.

The current issue is that I’ve just had notice from the local authority that I’m to receive an invoice for backdated service charges, for an amount which is almost double the ANNUAL rent that I’m currently paying – backdated to April 2014 which is just three months after I began the tenancy.

The local authority has also said…

it is highly unfortunate that last years reconciliation was not done to step up service charges at that time

… which smacks to me like a cock up on their part somewhere down the line. Or maybe a poorly thought out attempt at grabbing some cash from current tenants.

So, my issues are:
– they’ve never sent me any kind of notice that I’m underpaying at any point in the two years that I’ve been a tenant, despite the contract agreeing that they would do that.
– the contract I signed stated an amount for annual rent which was inclusive of service charges, which I happily signed and which I’ve happily been paying for 2 years. If I’d known that just three months after signing the contract that I’d start accruing a shortfall which effectively means my annual costs are double the amount in the contract, then I genuinely wouldn’t have signed the contract in the first place as the business wouldn’t have been able to afford it.
– the business isn’t going to be able to cover this invoice (who can run/plan a business effectively, not knowing that an unexpected invoice for an unknown amount can land any day?!).

What I’ve just done is offer the local authority a maximum of 20% of the shortfall, which is just about all the business can manage, on the provisio that I move out immediately and the account is fully closed with no further charges. I’ve also told them that the alternative to this is for me to get some legal advice in respect of how such a shortfall has been allowed to accumulate on this kind of scale in comparison to the original inclusive rental amount, and without any communication of increases or notification of accounts from them in almost 2 years.

Does the accumulated STW mind have any sensible-ish advice for me?

Ta.

Hopefully not staying the obvious… But it looks like your tenancy agreement was formed from a compilation of standard terms, resulting in a contradiction within the document.

I can’t see how rent can be inclusive of the service charge whilst being subject to a split of costs for service charges.

What that means for the validity of the document though, I’m not sure.

I guess if it went to court, a judge would look at the intentions of both parties! Not sure how that helps.

It might then fall back to what is reasonable i.e. was the level of rent in line with a typical market rate. If it was well below, then I guess it would be reasonable to assume that a level of service charge would be expected on top. That’s probably not great news for you.

If there’s no-one on here with more specific / definitive advice, I’d be inclined to spend on the advice of a property lawyer. From what you say, it could be a decent investment!

it looks like your tenancy agreement was formed from a compilation of standard terms, resulting in a contradiction within the document.

Yep, it certainly does. I’m not sure whether this will ever reach a court, as if necessary I will take it through the council’s own complaints procedure and then to the local government ombudsmen as first steps.

What they’ve done is bloody immoral, if nothing else. So much for supporting local, small businesses.

It appears to me that the council have in error not deleted a standard service charge clause from the document they have prepared. The rent clearly states it is inclusive of service charge – From the info you have supplied there is no obligation on you to pay anything other than the inclusive rent.

i suspect they have made an error and are trying it on.

You need to be aware however that the tenancy at will affords you no security, it can be terminated at short notice – which i suspect they will do if you stand by the terms of the TAW

if i was you i would agree terms for a new tenancy with a capped or fixed service charge so that you know your annual exposure to costs.

happy to help if you need more….

Yip, that’s how I read the situation. Cheers for the insight.

I’ve also just dug out the particulars for the unit, that they sent me back in October 2013 while I was negotiating a move in date etc…

The monthly rent collected by direct debit is inclusive of rates, water rates, heating, lighting, building insurance, maintenance, management and cleaning costs. This is designed to minimise the administrative burden on small businesses.

“Minimise the burden”?! Jeez.

To be honest, it now looks likely that they will be increasing the rent to double what I’m currently paying to cover these additional ‘service charge costs’ which would make it unaffordable for me, so unfortunately I’ll be ending the tenancy myself which means insecurity isn’t really an issue.

I’m not sure I can trust them any more anyway.

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