Time to read: 4 minutes

Office service charges are paid by the tenants to cover the cost of running the building – in proportion to the amount of space they occupy. Service charges are one of three principal costs of occupying rented office space in London, the others being  rent and business rates. Of course there will be other “hidden” office costs apart from the three main ones. However, below I’ll explain everything you need to know about office service charges.

How do office service charges work?

If an office building is “multi-let” – i.e the building is occupied by a number of different tenants – the cost of running the building is split amongst the tenants in proportion to the amount of office space that they occupy. If one tenant has 10% of the lettable office space in the building, then their service charge cost is 10% of the total bill.

A managing agent will be appointed to operate the building on behalf of the owner. They will be paid a fee, again being split proportionally amongst the tenants. The tenant would contact the managing agent with any issues related to any common services in the building.

Every building can be slightly different in the way office service charges operate. The individual cost elements can differ and should always be checked when agreeing the lease for fairness. Some time ago, when checking a service charge list, we saw listed “maintenance of the roof garden”. There was no roof garden! Always check the list.

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What can you expect to pay for office service charges…and when?

Before the start of the service charge year (a date that the landlord chooses), the managing agent will make up a list of all the items that will incur a cost and calculate an estimate. The agent will total these costs up to arrive at a cost per square foot per year. Again using the proportion of the building that the tenant occupies, an estimate of the cost for the next year will be given to the tenant.

Each office building differs but the average cost per square foot per annum in Central London is £15. The expected cost for the year is provided to the tenant and the estimated cost is billed on a quarterly basis. Please be aware that at the year end, the actual costs are calculated. Any overrun of costs  (above the estimates originally provided) are then billed to the tenant.

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What elements are included in office service charges?

These are the most common items charged through an office service charge. Of course, it does vary from building to building, and this list is not exhaustive. However the following list will give you a general idea of the make-up of a service charge.

  • Insurance: insuring the building, the plant (e.g. lifts, air-conditioning etc) and public liability.
  • Maintenance: maintaining all plant including heating, ventilation and air-conditioning (HVAC) and all general maintenance
  • Contracts: any external contracts required for the building (e.g. fire alarms system and equipment)
  • Miscellaneous: Security, lifts, pest control, common parts cleaning, health and safety compliance, window cleaning etc.
  • Supplier costs: water, gas and electricity for the heating and/or air-conditioning, telephones and CCTV for the common parts, waste collection
  • Managing agent fees: payable in addition to the actual costs incurred.

You should note that some of the above categories can be subdivided further. However I’ve  grouped them together here to give you a general overview of office service charges.

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Final thoughts

Any cost incurred in any aspect of running the building can and will be included in the overall office service charge bill. Ultimately the service charge cost is a variable cost – not an attractive proposition for any business. However, it is possible to negotiate a service charge cap linked to inflation (either  RPI or CPI)  providing a level of certainty and save some money on your office costs. We’ve been able to negotiate this on behalf of many of our clients over the years, so always ask this question.

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