The service charge is meant to cover the day-to-day running of the building, not the landlord's investments. Yet upgrades, the costs of the landlord's own company, the upkeep of vacant space and leasing commissions routinely find their way into reconciliations. Below are ten items worth writing into the lease as a closed list of exclusions, and twelve clauses that make that list actually work.
Service charge negotiations usually come down to one question: can the rate be reduced? But the on-account payment is only an estimate. At year-end you will pay whatever the landlord's actual costs turned out to be. What really determines the bill, therefore, is what the landlord is allowed to include in those costs.
Why does the exclusions list matter more than the rate?
If the lease defines service charge costs as expenditure related to the operation of the building, “in particular” the items listed in a schedule, the list is open-ended and the landlord decides what goes into it. An exclusions list closes that loophole, and all it takes is a single schedule to the lease that applies for the entire lease term.
The split is simpler than the documents make it look. On one side are the costs of running the building you occupy day to day; on the other, expenditure that adds value to the building. And the building belongs to the landlord, not to you.
Where the line falls
Only some of the invoices a building receives are genuine operating costs.
Operating cost
paid by the tenant, pro rata to floor area
- Security, cleaning of common areas
- Servicing and maintenance of building systems
- Common-area utilities
- Property tax, insurance
- Property manager's fee
- Minor repairs, grounds maintenance
Landlord's capital expenditure
adds value to the building, not recoverable from the tenant
- Upgrades and improvements
- Structure, roof, facade
- Valuations, appraisal reports, lender documentation
- Asset management, the owning company's accounting
- Upkeep of vacant space
- Marketing and leasing commissions
Ten items to exclude
The list below works best as a schedule to the lease, not as something agreed by email. Each item comes with a short rationale you can use in discussions with the landlord.
Upgrades and improvements
Anything that goes beyond standard maintenance. Replacing building systems with newer ones, rather than like-for-like, increases the value of the landlord's asset. A repair restores the previous condition; an upgrade delivers something better. Leases often leave this line deliberately blurred, which is why it is worth defining.
Construction, extension and initial fit-out
These are capital expenditure, not operating costs. This also covers the initial furnishing and equipment of common areas, which sometimes appears in the reconciliation as “additional equipment”.
Structural repairs
Roof, facade, load-bearing structure, foundations, insulation. These are the landlord's responsibility as owner of the building, not a consequence of its day-to-day use.
Valuations, appraisal reports and ownership documentation
Property valuations, formal appraisal reports, audits for the financing bank and documentation for a sale. They serve the landlord and its lender.
Asset management and the landlord's corporate accounting
Managing the asset is not the same as managing the building. Accounting for the special purpose vehicle, corporate administration and investor reporting are the costs of running the landlord's business.
Upkeep of unlet space
Vacancy is the landlord's investment risk, but it can be passed on to tenants through the way the cost share is calculated. If your share is calculated on the let area rather than the building's total area, you are also paying for the empty units. For example: a building has 10,000 m², of which 8,000 m² is let, and you occupy 1,000 m². Based on the total area your share is 10%; based on the let area it is 12.5%, so you pay a quarter more.
Tax penalties and fines for negligence
Administrative sanctions, penalties for late statutory inspections, fines for breaches of regulations by the landlord or the property manager. These are the consequences of someone else's mistakes.
Debt recovery and litigation
The cost of recovering arrears from other tenants and of court proceedings brought by the landlord. You have no influence over them and derive no benefit from them.
Reinstating space after another tenant
Works following a tenant's departure and preparing the unit for the next one. This is the cost of administering someone else's lease.
Marketing and leasing
Agents' commissions, campaigns promoting the building, materials for prospective tenants. They serve to secure new leases, so the landlord pays for them. Events for existing tenants are a different matter and can be a legitimate cost.
A list alone is not enough
An exclusions list only works if the lease allows you to enforce it. Without the right to inspect documents, you cannot check whether the landlord is complying with it; without a transparent method for calculating your share, you cannot check whether your portion of the costs has been calculated correctly.
Twelve lease clauses
The first six only work together: without any one of them, the rest lose most of their force.
Protection mechanism
- 01Clear definitions: what is and is not included in costs
- 02A closed list of recoverable costs or an exclusions list
- 03A cap on the annual increase in costs within the landlord's control
- 04A percentage share with a transparent calculation method
- 05Audit rights with access to documents
- 06The exclusions list as a schedule to the lease
Reconciliation process
- 07An obligation to provide an annual reconciliation
- 08A deadline for delivering the reconciliation and a sanction for delay
- 09Format: cost line items and the apportionment key
- 10A rule for setting the on-account payment for the following year
- 11A cap on the management fee
- 12Services procured by tender, not awarded to companies in the landlord's group
Clause 12 is often the hardest to negotiate, yet it can have the biggest impact on the bill. If security, cleaning and management are bought from companies related to the landlord, no one on the other side has any interest in keeping prices low. Only one clause protects you against this: an obligation to select suppliers by tender.
When should you negotiate this?
Before you sign the lease. After that, you can no longer add an exclusions list, and all that is left is checking whether the landlord sticks to what it agreed.
If the lease is already signed and contains no such clauses, your route is the annual reconciliation: request the source documents and challenge items that are not operating costs. It is a weaker position, but not a hopeless one, because you usually have three years to challenge a reconciliation. A reconciliation for 2023 can be disputed until the end of 2026. What such a review actually checks is described on our service charge audit page.
What to do about it today
- Negotiating a lease: add the exclusions list as a schedule and treat the first six clauses as a package, not as a menu to pick from.
- Lease already in place: take your latest reconciliation and go through the ten items in this article. For each one, ask a single question: does the amount I paid include anything from this list?
- Cannot answer: that means the reconciliation is too general. You have grounds to request a breakdown of cost items and the apportionment key.
How much these amounts actually weigh in your budget is shown in the first article in this series: what office service charges cost in Warsaw, Wrocław and Kraków. You can decode the terminology used in offers and leases with our glossary of leasing terms, and you will find the wider negotiating context in our guide to negotiating an office lease in 2026.
