Service charges in shopping centres

The decision by entertainment retailer HMV to call in administrators follows the collapse of a number of high street firms in 2018, including Toys R Us and Maplins. Earlier in the year, asset management firm APAM estimated that roughly 200 shopping centres were in danger of fallingĀ into administration as a result of the domino effect of store closures.

Property litigation solicitor Simon Marciniak looks briefly at the consequences of their disappearance from the high street and what smaller businesses ought to be doing to protect their own property interests.

Firstly, leases on a retail development will allow the landlord to recover their running costs from the tenants. Where one tenant defaults, this will affect the landlord’s ability to pay for essential maintenance and repairs. There are a number of ways in which service charges can be apportioned on a development. If a tenant pays a fixed percentage of the total service charge, this is based on the premises being fully let and it will not vary when other units are unlet and are not contributing. This method is likely to provide some certainty and assurance to tenants where premises have been affected by closures and it places the onus on the landlord to ensure the premises are fully let. Another method is for each tenant to pay a ‘fair’ proportion, but this can lead to disputes, particularly where tenants leave empty units.

Tenants therefore need to ensure that leases are drafted to minimise these risks. Even where individual service charge contributions are up to date, a more likely scenario is that the landlord will seek to argue that performance of their obligations under the lease is dependent on receipt of all contributions. A tenant who has paid their share will therefore feel aggrieved if essential repairs are being delayed through the default of a departed tenant.

From a tenant’s point of view, it will be important to ensure that the lease is not drafted in such a way to give the landlord this protection. The remedy for a tenant would be an injunction against the landlord or to do the works themselves and seek to recover the costs from the landlord.

As a last resort, a tenant will need to consider ending their lease, but if they do so, they will need to consider their situation carefully before exercising a break option. This was covered in more detail in a previous article on but in brief, a tenant will normally need to ensure their obligations under the lease covenants are up to date. This will include payment of service charge arrears.

Most leases will prohibit deductions or set-off upon breaking a lease, which means it is normally wiser to pay in full on a without prejudice basis and seek to recover any monies due to the tenant later.

For more information on protecting your property interests as a small business, please contact Simon Marciniak 020 7426 0400 or email sm@milesandpartners.com.

This article is for general information purposes only and does not constitute legal advice. Please note that the law may have changed since the date this article was published. You should always take legal advice relating to your individual circumstances.