What is service charge when renting an office space?
When renting an office space, in addition to the rent, you also must pay service costs. But for what exactly do you pay these extra costs? In case of an office space, there is no fixed legal definition of service costs. The composition of the service charges therefore depends on the specific rental agreement. The base for service costs are the level of supplies and services that are provided by the landlord (on behalf of the tenant). These costs for services and supplies relate in the first instance to property-related costs incurred by the lessor on behalf of the lessee. Examples of service costs are maintenance of the air conditioning system, water, internet, cleaning costs of the common areas, municipal taxes, reception, security costs and energy costs such as gas and electricity. Costs such as a promotion fee or insurance premiums are not included in the service costs most of the time.
An administration fee is paid over the total of the service costs. Around 5% of the total is normal. When entering into a rental agreement for an office space, little or no attention is paid to the content of the service costs. This is remarkable to say the least, because the service costs for an office is approximately 30% of the average rent and are an important part of the tenant’s payment obligation.
Statutory regulations on office space service charge
The service costs are stated separately in the rental agreement. However, this is a non-exhaustive list. As a result, the cost statement in the rental agreement is limited to an estimate of the costs. It is therefore unclear to the tenant throughout the entire rental period which costs exactly qualify for settlement. Unlike in the case of residential accommodation, there are no specific statutory rules on service costs in the case of office rentals. There is therefore regular discussion between the tenant and the landlord about the service costs, for example about the amount of the service costs or the late final settlement. Due to absence of a statutory regulation, it is important for the parties to properly establish which items are included in the service costs, in order to avoid discussion in a later stage about which costs can be charged.
Service charge for taking up the agreement on office space
The tenant and the landlord usually agree that the tenant will pay a monthly or quarterly advance on the service charges and that, as described in standardized Real Estate Council models, a final statement will be sent to the tenant at the end of a period, usually one year. The relevant general provisions of a standard Real Estate Council model are:
Article 15.3: “If the parties have agreed that additional deliveries and services are provided by or on behalf of the lessor, the lessor shall determine the fee payable by the tenant for this based on the costs involved in the deliveries and services and the related administrative work”.
Article 15.4: “The landlord shall provide the tenant with a statement of the costs of the supplies and services in a categorical manner for each year, stating the manner in which they are calculated and, where applicable, the tenant’s share these costs”.
Article 15.5: “If a rental contract is terminated, an overview shall be provided for the period from the last statement till the exact end date. The latter statement shall be provided after expiry of a maximum of 14 months, calculated from the date on which the tenant was first appointed to the tenancy agreement.
Article 15.6: “What is shown in the statement for the period in question, taking account of advance payments, is underpaid by the tenant or over received by the landlord, shall be paid or refunded within one month after the statement is provided.
In practice, tenants often find the final statement too unclear because the items do not accurately reflect which supplies and services are being charged. It is also often the case that the final bill is much higher than the advances paid. It is good for landlords to regularly check whether the contracts concluded concerning the service costs still match with the tenant’s consumption.
Serviced office rental in cities such as Amsterdam
In addition to conventional office space with a fixed rental price and the associated service costs, more and more office space providers are renting out office spaces as all-in concept, also known as a business center. This means that you agree in advance on a fixed amount for all additional services and supplies and extra facilities such as unlimited coffee, tea and fruit, use of office furniture, internet, telephony, etc. Renting an office space for a fixed amount per month, including all facilities of the office building and possible services, without any surprises. The serviced office market has grown exponentially, especially in the larger cities such as Amsterdam.
Avoid ambiguities in service costs for office space
Uncertainties regarding the service costs can easily be avoided. Clear agreements must be made between the tenant and the landlord regarding the content of the services. This means that organizational, contractual and financial must be clear for all parties involved. From an organizational point of view, it is important to agree on the way the final statement has to be drawn up, the period within which it must be provided to the tenant and the way it has to be approved. Contractually, it is important to know what “supplies and services” are obtained, for what quality and which frequency. Tenants can now make a well-considered choice about the content and quality that is important for the company.
Of course, the whole thing translates into costs: the service costs. The tenant now has a good insight into the expected costs. Now also enables the tenant to predict the rental charges and additional service costs for the duration of the agreement. If both parties adhere to this, this will result in a smooth check of the annual final settlement of the service costs. This saves the tenant a considerable amount of money, time and annoyance.