A Bellrock Group Company

How are a building’s service charge costs allocated between occupiers?

01 Mar 2018

How are a building’s service charge costs allocated between occupiers?
The term apportionment is the mechanism by which the costs of providing services to the shared areas of a multi-let building are split between the different tenants of the property.
The process of allocating service charge expenditure across a building normally involves two processes: the scheduling of costs, and the apportionment of costs within a given schedule to the different demised areas. Scheduling is used when user groups each obtain differing levels of benefit from a particular service, and therefore unique sub-groups of tenants are identified for the determination of cost within individual schedules. While the precise scheduling process is rarely fully articulated in most leases, it is invariably undertaken by the landlord/managing agent by applying the common lease wording that cost allocation between tenants should be “fair and reasonable”.
In contrast to the scheduling process itself, the apportionment of costs within schedules is a protocol that is often explicitly prescribed in leases. The most common approach to allocate costs within a schedule is to use a predetermined ratio based upon a tenant’s demised floor space divided by total lettable floor space available across the whole building. For multi-let retail buildings, it is common to utilize a weighted-average approach to such allocations, which benefits larger occupiers, and this method is described in detail within the RICS Code on Commercial Service Charges. However, from our investigation of the apportionment provisions within 90 UK office leases, no document utilized a weighted average approach to allocate costs within schedules.