The key point about the lease here (which was the basement of an office block) was that the lease contained a provision capping the service charges at a small sum during the first five years. At the same time, the lease required L to use ‘all reasonable endeavours’ to comply with his repairing obligations. What happened was that expensive works were eventually carried out outside the five-year capped period, and T argued that L should have carried out the works earlier (when the cap would have applied). The court agreed, holding that L was in breach of its obligation to use ‘all reasonable endeavours’. As such, it is a useful reminder that delay by L can give T legitimate grounds for complaint (depending, of course, on the wording of the lease). What is, perhaps, of even greater interest is the criticism by the judge of this particular L, and also of many other commercial Ls:

‘T’s who agree to service charge clauses under which they contract to pay against a surveyor’s estimate or an accountant’s certificate rely upon the professional people involved performing their roles with professional scrupulousness, diligence, integrity and not in a partisan spirit… The experience shows that such reliance can be misplaced. There are signs that the commercial letting market is beginning to reject the “full recovery” service charge for this reason.’

The judge said of standard service charge arrangements that ‘a more potent recipe for expensive and unproductive litigation would be difficult to devise’. He also contrasted the regulatory control of service charges in the residential sector, and it is not difficult to see his judgment as a call for similar controls to be imposed in the commercial market. In the meantime:

• Ts should never assume that service charges are properly charged. Closely monitor all service charge demands and challenge any that do not appear to comply with the provisions of the lease;
• be familiar with the RICS Code of Practice on Commercial Service Charges and warn L whenever L does not meet the standards of the guide. See www.servicechargecode.co.uk;
• see if there is a ‘reasonable endeavours’ obligation on L. If so, remind L of the effect of this (in particular, to make sure that there is no delay);
• if you want to negotiate a limit on service charges then a cap for an agreed period is one possibility. Alternatively (or in addition) try to negotiate a monetary limit on specific items of expenditure.

Princes House v Distinctive Clubs [2006] All ER (D) 117.  © Practical Lawyer