Service charges can be a common source of disagreement between landlords and tenants, particularly in buildings that combine residential and commercial premises. With different occupiers using different parts of a property, questions can arise over which costs are reasonable, how they should be divided and who is responsible for paying them.
For landlords and managing agents, these disagreements can create financial uncertainty and complicate property management. For residential leaseholders and commercial tenants, unexpected charges or contributions towards services they do not use can be equally concerning.
The position is particularly complex in mixed-use developments, where residential and commercial occupiers have different legal protections. A recent Court of Appeal decision has also clarified when those protections may apply.
Why do service charge disputes arise?
Service charges generally cover the costs of maintaining, repairing, insuring and managing a building. Depending on the terms of the lease, this might include communal cleaning, security, building repairs, lifts and maintenance of shared areas.
In mixed-use buildings, disputes often arise because residential and commercial occupiers have different requirements. For example, flat owners may question why they are contributing towards commercial waste collection, while business tenants may object to paying for residential facilities they never use.
The starting point will usually be the lease, which should explain which costs can be recovered and how they are allocated. Some leases use fixed percentages or floor area, while others contain separate schedules for residential and commercial expenditure.
Importantly, a charge is not necessarily unenforceable simply because a tenant does not use a particular facility. The wording of the lease and any applicable statutory protections must be considered.
Residential and commercial tenants: understanding the differences
One of the main challenges in mixed-use developments is that residential leaseholders and commercial tenants do not necessarily have the same rights when disputing service charges.
Residential leaseholders
Residential leaseholders benefit from statutory protections under the Landlord and Tenant Act 1985.
Under section 19, relevant service charges are generally only recoverable where costs have been reasonably incurred and works or services have been carried out to a reasonable standard.
There are also requirements concerning consultation, transparency and access to information. These include:
- Major works: Landlords must generally consult qualifying leaseholders where an individual’s contribution exceeds £250.
- Long-term agreements: Consultation may also be required for qualifying agreements lasting more than 12 months where an individual’s annual contribution exceeds £100.
- Older costs: Under section 20B, charges relating to costs incurred more than 18 months earlier may be unrecoverable unless statutory notification requirements have been met.
- Access to information: Leaseholders have rights to request summaries of expenditure and inspect supporting documentation, subject to statutory procedures.
Where consultation requirements have not been followed, the amount recoverable may be restricted unless the appropriate tribunal grants dispensation.
Commercial tenants
Commercial tenants generally do not benefit from equivalent statutory service charge protections. Instead, their rights and obligations depend primarily on the terms of their lease.
The Royal Institution of Chartered Surveyors (RICS) publishes professional standards concerning commercial service charges, including expectations around transparency, budgeting and fair apportionment. Although these do not override contractual obligations, they can be relevant when disputes arise.
For commercial landlords and tenants, clear lease provisions and an understanding of their respective obligations are particularly important.
A 2026 Court of Appeal decision: when does a commercial property count as a dwelling?
The distinction between residential and commercial premises was considered in Cloisters Business Centre Management Co Ltd v Anvari [2026] EWCA Civ 17.
The case concerned a self-contained unit in a converted Victorian convent. Its lease permitted office use with ancillary residential use, although the premises were being used for storage.
The Court of Appeal held that the unit qualified as a ‘dwelling’ under the Landlord and Tenant Act 1985, meaning statutory service charge protections applied.
Importantly, the Court confirmed that residential use did not need to be the property’s predominant permitted use. The terms of the lease and the physical characteristics of the premises were more significant than how the property happened to be used at the time.
The decision has implications for landlords and tenants of live/work units and other mixed-use premises. Landlords who consider a property to be commercial may find that residential service charge protections apply.
However, each case will depend on its particular circumstances, and the decision does not automatically extend those protections to every commercial unit.
Can service charges be challenged?
In many disputes, the issue is not whether a landlord has incurred a cost, but whether it has been allocated correctly.
Common disagreements involve commercial tenants contributing towards residential facilities, leaseholders being charged for commercial services, or occupiers questioning increases in management and insurance costs.
Whether a charge can be challenged will depend on the lease and the applicable legislation.
Where a lease allows the landlord to determine a fair or reasonable proportion of expenditure, residential leaseholders may be able to challenge the allocation through the tribunal. Where fixed percentages are specified, there may be less flexibility, although certain circumstances may justify an application to vary the lease.
For commercial tenants, challenges will generally focus on contractual interpretation and whether the landlord is entitled to recover the expenditure claimed.
Resolving a service charge dispute
Service charge disagreements do not always need to result in formal proceedings.
The first step is usually to review the lease, service charge demands, accounts and supporting invoices to establish what is being charged and why.
Where possible, negotiation or mediation may offer a practical solution, particularly where the landlord and tenant have an ongoing relationship.
However, formal proceedings may sometimes be necessary.
In England, qualifying residential leaseholders can apply to the First-tier Tribunal (Property Chamber) under section 27A of the Landlord and Tenant Act 1985 to determine whether charges are payable and reasonable. In Wales, the equivalent jurisdiction is exercised by the Leasehold Valuation Tribunal.
Commercial disputes may be resolved through negotiation, mediation, contractual expert determination or court proceedings, depending on the circumstances.
Tenants should be cautious about withholding payments without first obtaining legal advice, as this could create additional risks.
What is changing?
The Leasehold and Freehold Reform Act 2024 provides for further changes to leasehold arrangements, including measures intended to improve service charge transparency.
Following a government consultation response published in July 2026, planned reforms in England include more standardised service charge demands, annual reports and accounts, improved access to information and greater transparency around building insurance costs.
Many of these measures are not yet in force, with implementation expected to begin during 2027.
Separately, changes introduced in March 2025 increased the permitted proportion of non-residential floor space for buildings qualifying for the Right to Manage from 25% to 50%, subject to other eligibility requirements. This allows more mixed-use developments to potentially qualify for leaseholder-led management.
How RIAA Barker Gillette can help
Whether you are a landlord seeking to recover unpaid service charges, a commercial tenant questioning your obligations or a residential leaseholder concerned about unreasonable costs, understanding your legal position early can help prevent a disagreement from escalating.
At RIAA Barker Gillette, our Property Litigation team advises businesses and individuals on a wide range of property disputes, including service charge disagreements and landlord and tenant matters.
We work with clients to assess their position and identify an appropriate approach, whether through negotiation, mediation or formal court and tribunal proceedings.
If you need advice about a service charge dispute or your rights and obligations under a lease, contact our Property Litigation team to discuss your circumstances.
About the author
Laura St-Gallay is a Partner and Head of Dispute Resolution at RIAA Barker Gillette. She specialises in property, construction and commercial litigation, as well as insolvency matters. Laura focuses on delivering practical, commercially driven solutions through negotiation and alternative dispute resolution. She is also a member of the Property Litigation Association and the Association of Leasehold Enfranchisement Practitioners.