A service charge is a fee charged by landlords to tenants in order to recover common expenses.

These common expenses are normally the cost of lighting, cleaning, repairing and maintaining the exterior, main structure and common areas of a building that has more than one tenant.

Ordinarily, the landlord produces an estimate of expenses for the forthcoming year and the tenant pays that estimate by instalments, generally monthly or quarterly, much as with rent.

The landlord assesses the costs actually incurred at the end of the year and either invoices the tenant for the difference or gives the tenant a credit against the next instalment of the service charge.

Service charges vary widely, dependent upon the age of the building, its condition, and what the service charge is intended to cover.

In the City of Hamilton, they range between $3.00 and $15.00 per square foot for commercial office space and can add considerably to overheads.

The estimated charge may not, however, tell the full story.

An incoming tenant is advised to ask for actual service charge figures for the previous two years, together with details of estimated charges for the first year of the lease term.

The tenant should also ask the landlord to confirm, in writing, that there is no present dispute between the landlord and his tenants regarding the service charge, and that there are no circumstances known to the landlord that would result in the service charge materially exceeding the estimate provided.

Whatever the estimated charge may be, a tenant must realise that actual costs may be considerably higher, and that recoverability will be governed by the terms of his lease.

Service charge recovery is a leading cause for dispute between landlords and tenants once a lease has commenced.

Tenants need to be particularly wary of lease terms that could leave them with open-ended liability to pay for the replacement of expensive capital items or hidden structural defects or which entitle the landlord to extend the range of services covered by the charge after the lease has commenced.

The common law provides a limited amount of protection in such cases, but will always be overridden by an express term in the lease itself.

Consequently, tenants must pay attention to what costs are covered by the service charge and ensure that they are prepared to pay their share of the cost.

A second cause of disputes between landlords and tenants is the failure by landlords to maintain the building as the tenant would wish.

Landlords only become liable under an obligation to keep a building in repair when they know that a breach has occurred.

Tenants should therefore ensure that they complain formally, in writing, and retain evidence that a complaint has been made.

If complaining fails, the tenant may be able to withhold rent until the landlord makes good his default.

The tenant must, however, be confident that his landlord is in breach of an obligation under the lease or the common law, and the lease does not exclude a right of deduction or 'set-off'.

A safer, although possibly more expensive, alternative is for the tenant to apply to the court for relief under Section 19 of the Landlord and Tenant Act 1974.

Section 19 permits the court to order termination of the lease agreement where the landlord is in breach of an obligation.

Alternatively, a tenant may apply to the court for an order permitting him to withhold rent until the landlord makes good his breach.

In either case, it is important that the tenant establishes that he has complained of the breach and given the landlord an opportunity to remedy the same.

The tenant may also, dependent upon the facts of the case and the terms of his lease, be able to carry out works required to remedy the breach and either claim damages or deduct any costs incurred from his rent.

Next week, I will discuss the service charge from the landlord's perspective.

Attorney Michelle Stone is a member of the Property Department at Appleby Spurling & Kempe. You can write to her with your questions at mstone yask.bm.

Copies of Mrs. Stone's columns can be obtained on the Appleby Spurling & Kempe web site at www.ask.bm.

This column should not be used as a substitute for professional legal advice.

Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.