Taking an assignment of an existing lease? Remember to check the service charge

While a tenant taking an assignment of an existing lease may remember to apportion the service charge for the existing quarter it is common to fail to consider the fact that this is often an estimated amount and there may be a balancing payment at the end of the year.

We recently acted for landlord pursuing their current tenant for payment of the balance of the service charge, some of which related to the period pior to an assignment. With no contractual provision otherwise the tenant was due to pay sums which should have been due from the former tenant.

It is common for a service charge to be paid throughout the course of the year based on estimates and a balancing statement is made at the end of the year requiring payment of any underpayment or refunding any over payment. The balancing payment only becomes due when demanded and may relate to costs incurred at any point during that year.

For an incoming tenant taking an assignment of the lease during the service charge year the question should be how much has been paid and is there likely to be a balancing payment required at the end of the year? It may be difficult to ascertain but in any case provisions should be included in any contract for these costs to be apportioned when they arise. In some circumstances it may be sensible for the incoming tenant to hold a sum of monies on deposit from the outgoing tenant until any potential sums have been paid out.

Of course there is always the (less likely!) chance that there is a balancing payment in the tenant’s favour and any provisions would have to reflect this too.

An incoming tenant may think that any sums that relate to the period prior to assignment should be dealt with direct between the landlord and the previous tenant but this is not necessarily the case. An unwary incoming tenant may find themselves unwittingly responsible for costs that could have been apportioned to a previous tenant and unable to recover them.