CITY OF LONDON LAW SOCIETY LAND LAW COMMITTEE SUGGESTED SERVICE
CHARGE PROVISIONS FOR A SHOPPING CENTRE
The following service charge provisions produced by the City of London Law Society Land Law committee ("Committee") have been drafted for a lease of a shopping centre, although they may readily be adapted for any lease of commercial premises. The Committee has also produced a separate set of service charge provisions for an office building, which can be found on the web page for the Committee and a link to which follows:
While the following provisions are detailed, users should not feel constrained to use the entire set of provisions. Users may choose to incorporate part of these provisions to supplement their own lease provisions (ensuring consistency between the provisions). The draftsmen have been keen to achieve a balanced draft inspired by and reflecting many elements of the RICS Code of Practice on Service Charges in Commercial Property ("the Code"), a link to which follows:
For example, many of the tenant's protection provisions reflect the Code. The RICS Code of Practice on Service Charges in Commercial Property is referred to as the "Service Charge Code" in the footnotes in this document.
The draft envisages that the service charge provisions will be contained in a schedule to the lease. That being the case, there will need to be an obligation on the Landlord and Tenant in the main body of the lease to observe and perform their respective obligations and the conditions in the schedules to the lease.
The service charge provisions include a number of definitions, some of which may need to be included in the main definitions clause in the lease if used elsewhere in the lease. Ensure the capitalised terms in the provisions are consistent with the other capitalised terms/definitions in the lease.
Instructions will need to be taken on the specific services to be provided- for example, is there a car park, to which the service charge provisions will extend? There may also be a need to include an "estate charge" (covering the provision of services on the estate) as well as the service charge for the building or centre itself. Consideration should also be given to the length of the term of the lease to be granted, as it may be appropriate in the case of a short term to limit the tenant's obligations, whether through the exclusion of particular heads of expenditure or by agreeing an overall cap on the tenant's contribution.
Despite the lack of industry consensus on how to deal with the CRC Energy Efficiency Scheme in leases, the Committee has decided to include some drafting, if nothing else to encourage debate on the issue. The provisions include the costs of CRC allowances and administration as a non-mandatory head of charge in Part C. The Committee appreciates that it is likely the property industry's approach to lease drafting for CRC will develop and, if that happens, the Committee may revisit its approach to CRC.
The Code uses the expression "hard" and "soft" to describe certain services. "Hard" services include mechanical and electrical services, lifts and escalators, suspended access equipment (that is, equipment used to provide access to the exterior of structures for activities such as painting and cleaning) and fabric repairs and maintenance (including repair of structure and common parts and redecorations). "Soft" services include security, cleaning and environmental (including refuse collections and landscaping) and marketing and promotions. While this draft does not refer to services as "hard" or "soft" (instead preferring more specific headings), users of these provisions should feel free to use those expressions and may also consider utilising in the lease drafting the "standard industry cost classifications". Please see Section 3, Appendix 1 of the Code for further information on the cost classifications.
While the provisions include detailed treatment of sinking and/or reserve funds (paragraph 11), consideration should also be given to including a depreciation charge as an alternative, further details of which can be found in Section 7 of the Code. The Code encourages alternative dispute resolution ("ADR") as a means of resolving service charge disputes. While these provisions provide for determination by an independent expert (see paragraph 4.5.2), the parties should consider including an agreement by the landlord and the tenant to attempt to settle the dispute by mediation. The following links to the RICS's dispute resolution toolkit providing some useful background information:
We are interested in any comments you may have on the provisions and please do email the City of London Law Society at firstname.lastname@example.org to provide your feedback.
1SERVICE CHARGE PROVISIONS
In this Schedule, the following words and expressions shall have the following meanings:
"Base Rate Interest" the annual interest rate equal to the base rate of [ ] Bank plc (or,
if that rate ceases to be published, such other comparable rate of interest as the Landlord
shall reasonably specify);
[“Car Park” that/those part(s) of the Centre shown edged in [ ] on the plan(s)
2numbered [ ] attached to this Lease including any ramps;]
"Centre" the land and all buildings, fixtures and other structures from time to time on the
land and all appurtenances of the land, which land is known as [ ] shown
edged [ ] on the plan numbered [ ] annexed to this Lease and any extensions,
alterations or additions from time to time made to it (but excluding all tenants' and trade
fixtures) and any references in this Schedule to Centre include, where the context allows,
each and every part of it;
"Centre Opening Hours" the period commencing one hour before and ending one hour
after the Permitted Hours;
"Common Media" all Conducting Media within or serving the Centre, save those which
serve individual Lettable Areas exclusively;
"Common Parts" all parts of the Centre which are available or provided by the Landlord
for the general use or enjoyment in common by the Landlord and the tenants or occupiers
of or visitors to the Centre (including forecourts, pathways, accessways, entrances,
corridors, malls, lobbies, stairways, lifts, escalators, passages, turntables, courtyards,
3atria, light wells, pavement lights, external paviours, [[ the Car Park]], service areas,
toilets, bin stores or other refuse facilities and fire escapes);
"Conducting Media" pipes, wires, cables, sewers, drains, watercourses, trunking, ducts,
flues, gutters, gullies, channels, conduits and other media;
1 Ensure the reddendum includes an obligation on the tenant to pay the service charge in accordance with this schedule. 2 The treatment of car parks used by shoppers will need to be considered. Consider whether the Car Park is a Common Part or a Lettable Area or special case. A decision will need to be made as to whether the income from the car park will be credited to the service charge account or retained for the landlord’s benefit. The Service Charge Code calls for transparency. If the Landlord is to retain the income, this draft provides for the costs of the maintenance, repair and management of the car park to be excluded from Landlord’s Costs (see definition of Excluded Costs). If income is to be set off against Landlord’s Costs, the tenants will share the costs of servicing the car park as part of Landlord’s Costs. There may be special circumstances that call for a partial credit of car park income that will need alternative drafting. 3 See footnote 2 and paragraph 8.4.4.
“Due Proportion” has the meaning given to it in paragraph 2.3;
[“Excluded Costs” the costs incurred by the Landlord in the maintenance, repair and
4management of the [Car Park]]
"Group Company" any company which is for the time being a member of the same group of companies as the Landlord and "group of companies" has the meaning in section 42(1) of the Landlord and Tenant Act 1954;
"Insured Risks" (subject to such exclusions and limitations as may be imposed from time to time by the insurer) fire, lightning, explosion, aircraft and articles dropped from them, riot, civil commotion, malicious damage, storm, tempest, flood, earthquake, bursting or overflowing of water tanks, apparatus and pipes, impact by any vehicle and such other risks as the Landlord may reasonably consider necessary to insure; "Landlord's Costs" the costs and expenses incurred by the Landlord of and incidental to the provision of the Services in or with respect to the Service Charge Period or attributed to it in accordance with this Schedule [but Landlord's Costs do not include the Excluded
"Landlord's Surveyor" a surveyor or chartered member of a firm of surveyors who shall be a member of the Royal Institution of Chartered Surveyors or other suitably experienced person and such person may be a person employed by the Landlord or a company which is a Group Company;
"Lettable Areas" the areas in the Centre from time to time let or designed and intended
5for letting by the Landlord to one or more tenants;
"Management Premises" all administrative, security and control offices and centres and stores (if any) made available by the Landlord for the purpose of managing the Centre and providing the Services, together with any accommodation provided by the Landlord or made available at the Landlord's expense for a building or facilities manager or any other person employed by it for purposes connected with the Centre;
"Net Internal Area" net internal floor area measured in accordance with the current edition of the RICS Code of Measuring Practice;
"Outgoings" all monetary obligations of any kind (whether parliamentary, parochial or otherwise) which are now or may at any time be assessed charged or imposed on property or on the owner or occupier of property;
"Permitted Hours" the hours of [ ] to [ ] on every day and until [ ] on [late night shopping] except for Sundays and Bank Holidays, provided that any Sunday or Bank
4 See footnote 2. Thought needs to be given as to the precise extent of this exclusion (precisely which costs relating to the Car Park are to be excluded). If there are any other areas in respect of which certain service costs are not to form part of Landlord’s Costs, this definition should be amended appropriately.
5 Consider whether substations, transformer chambers etc are to be expressly excluded from Lettable Areas.
Holiday may be included or such hours may be reasonably varied by notice in writing
from the Landlord to the Tenant;
"Premises" the premises (forming part of the Centre) described in Schedule [ ] and each
6and every part of them;
"Retained Parts" all parts of the Centre other than the Lettable Areas
"Service Charge" has the meaning given to it in paragraph 2.2;
"Service Charge Code" the RICS Code of Practice 2011 - Service Charges in
7Commercial Property, as amended from time to time;
"Service Charge Period" the period of 12 months from [___________] to [___________]
in each year (or such other period of 12 months or more or less than 12 months as the
Landlord may reasonably determine);
"Service Charge Statement" the statement referred to in paragraph 4.1;
"Services" the services and heads of charge itemised in Parts B and C of this Schedule.
2. TENANT'S LIABILITY TO PAY SERVICE CHARGE
2.1 The Tenant shall pay to the Landlord the Service Charge.
2.2 The Service Charge is a Due Proportion of the Landlord's Costs for a Service Charge
Period attributable to the Premises in accordance with paragraph 2.3. 2.3 "Due Proportion", in relation to a unit of accommodation forming part of the Lettable
Areas (including the Premises), is such proportion of the Landlord’s Costs as the
Landlord reasonably deems fair and attributable to that unit of accommodation, but
without affecting the general operation of the Landlord's discretion: 2.3.1 the proportion shall be calculated primarily on a comparison for the time being of the Net
8Internal Area of the relevant part of the Lettable Areas with the aggregate Net Internal
9Area of all the Lettable Areas; but
2.3.2 [the proportion shall be adjusted in accordance with the weighting principles (referred to
10in this Schedule as the "weighting principles") set out in Part D of this Schedule; and]
6 "Premises" will be defined elsewhere in the lease and so will not need to be defined in the service charge provisions. A definition is incorporated here for ease of reference.
7 The following links to the Service Charge Code – http://www.servicechargecode.co.uk/
8 "Net internal area" is used in relation to offices and shops; "gross internal area" and "gross external area" both apply to industrial and warehouses (including ancillary offices). The RICS Code of Measuring Practice, currently in its 6th edition, contains detailed definitions of those terms.
9 Floor area is probably the most common basis of service charge apportionment between tenants, but other bases may be used (see section 1.5 of the Service Charge Code for further information).
2.3.3 if t