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Service charges don’t always stop when the lease expires

Posted on 31 July 2014 by Stefania Lobina

In Friends Life Management Services Ltd v A&A Express Building Ltd (2014), an office tenant received a painful reminder that tenants can still be liable for the cost of works carried out after the lease term expires.

Friends Life had contributed nearly £800,000 into a sinking fund set aside for future works.  When they exercised a break clause on 24 March 2010, they expected to get a big chunk of this money back.

The landlord, however, decided to undertake maintenance works to the tune of £1,046,691, with some of the work carried out later that year and the rest in 2011. Taking money from the sinking fund, the landlord billed Friends Life for these works – arguing that they could all be attributed to the financial year for the service charge (1 January to 31 December).

The dispute ended up in court, and the result was a score-draw.  The judge said the landlord could not charge Friends Life for costs incurred after 31 December 2010.  However, the judge did allow the landlord to use the sinking fund money to pay for works done between the break date (24 March 2010) and the end of calendar year 2010.

Even if there had been no sinking fund, the judge said Friends Life would be liable for approximately a quarter of all service charge costs incurred during 2010, including works carried out after the break date.  This was because Friends Life had occupied the building for roughly one quarter of the financial year (1 January to 24 March).  The lease was silent on how to apportion part-years, but the judge said that apportionment on a straight-line daily basis was the simplest and most practical method.

Stefania Lobina is a Trainee Solicitor within our Real Estate department.