Mixed-use developments, where residential flats share a building with shops, offices or other commercial premises, can present particular challenges when it comes to managing and sharing costs.
While all occupiers may contribute towards maintaining the building, they do not necessarily use the same facilities or benefit from the same services. A residential leaseholder might question why they are contributing towards commercial waste collection, while a business tenant may object to paying for facilities used exclusively by residents.
These differences can lead to disagreements over service charges, particularly where the terms of a lease are unclear, or costs have increased.
Understanding how service charges are calculated, the protections available and how disputes can be resolved is important for landlords, commercial tenants and residential leaseholders alike.
How are service charges divided in mixed-use properties?
Service charges generally cover a landlord's costs of maintaining, repairing, insuring and managing a property. Depending on the building and lease arrangements, this might include communal cleaning, security, repairs and building insurance.
In mixed-use developments, these costs can be more complicated to divide because different occupiers have different requirements.
The starting point is always the lease, which determines which costs can be recovered and how they should be allocated. It will require a careful review, as it is not unusual for clauses related to service charges to be set out in schedules as well as the main body of the lease.
Some leases specify fixed percentages, while others divide costs according to floor area or use separate schedules for residential and commercial services. Others simply state the share must be reasonable.
Problems can arise where the allocation does not reflect how the building is used, or where one group of occupiers believes it is subsidising services that primarily benefit another.
However, a charge that appears unfair is not automatically unlawful. Whether it can be challenged will depend on the lease and the legal protections available to the occupier.
Do residential and commercial tenants have the same rights?
One of the most important distinctions in service charge disputes is the difference between residential and commercial leases.
Residential leaseholdersResidential leaseholders benefit from statutory protections under the Landlord and Tenant Act 1985.
Under section 19, relevant service charges are only recoverable to the extent that costs have been reasonably incurred and any works or services are of a reasonable standard.
Landlords must also follow consultation requirements before certain major works are carried out or long-term agreements are entered into. These generally apply where an individual leaseholder's contribution exceeds £250 for qualifying works or £100 per year for a qualifying long-term agreement.
There are additional protections concerning the timing of demands, access to supporting information and the right to challenge charges.
Commercial tenantsCommercial tenants do not have the same statutory service charge protections. Instead, their rights and obligations depend primarily on what has been agreed in their lease.
This makes the wording of commercial leases particularly important, including provisions covering the costs a landlord can recover, how they are divided and whether there are restrictions on expenditure.
The Royal Institution of Chartered Surveyors (RICS) also sets professional standards for commercial property service charges, encouraging transparency and appropriate cost allocation. However, these standards do not override the terms of a lease.
For landlords and businesses entering into new lease arrangements, understanding these provisions at the outset can help reduce the risk of future disagreements.
Our Commercial Property team advises landlords and tenants on commercial leases and property transactions.
A recent Court of Appeal decision highlights an important distinction
A January 2026 Court of Appeal decision has highlighted why the distinction between residential and commercial premises is not always straightforward.
In Cloisters Business Centre Management Company Ltd v Anvari [2026] EWCA Civ 17, the court considered whether a unit in a converted Victorian convent qualified as a dwelling for the purposes of residential service charge protections.
The lease permitted office use alongside ancillary residential use. Although the premises were being used for storage at the time, they included facilities such as a kitchen and shower room.
The Court of Appeal concluded that the unit qualified as a dwelling under the relevant legislation, meaning the leaseholders were entitled to statutory service charge protections.
Importantly, residential use did not need to be the main permitted purpose of the premises.
The decision is particularly relevant to live/work premises and other properties where commercial and residential uses overlap.
It demonstrates that the terms of the lease and the physical characteristics of a property can be more important than how the premises happen to be used at a particular time.
However, the decision does not mean every commercial property with some residential use will automatically qualify for these protections. Each case must be considered on its own circumstances.
What can you do if you disagree with a service charge?
Disagreements often arise because occupiers believe they are being charged for services they do not use, costs have increased unexpectedly or insufficient information has been provided to explain the charges.
Before taking formal action, it is worth reviewing the lease alongside the service charge budget, annual accounts and any available invoices.
Raising concerns with the landlord or managing agent in writing can sometimes resolve the matter without further action, particularly where the dispute results from a lack of information.
If an agreement cannot be reached, the available options will depend on the type of lease.
Residential leaseholders in England can apply to the First-tier Tribunal (Property Chamber) to determine whether relevant service charges are payable and reasonable. In Wales, the equivalent body is the Leasehold Valuation Tribunal.
Commercial service charge disputes may be resolved through negotiation, mediation, contractual expert determination or court proceedings, depending on the circumstances and lease provisions.
Withholding service charge payments without taking advice can create additional risks, including potential enforcement action. It is therefore important to understand your legal position before deciding how to respond.
Our Dispute Resolution team can advise businesses and property owners on disagreements involving commercial property and lease obligations.
Are further changes to service charge rules expected?
The Leasehold and Freehold Reform Act 2024 introduces wider changes intended to strengthen protections for residential leaseholders.
In July 2026, the government confirmed plans to improve transparency around service charges in England, including:
- Standardised service charge demands and accounts.
- Annual reports providing information about building management and planned works.
- Greater access to supporting documents, including certain records going back six years.
- Clearer information about building insurance costs.
- Additional safeguards concerning the recovery of landlords' legal costs through service charges.
The government expects changes to begin taking effect from 2027, although the detailed regulations and commencement dates are still being finalised.
These reforms will be particularly relevant to residential leaseholders and those responsible for managing mixed-use developments.
How Lamb Brooks can help
Service charge disputes can create financial uncertainty and strain relationships between landlords and tenants, particularly where residential and commercial interests overlap.
Whether you are challenging a charge, responding to a dispute or reviewing the terms of a lease, understanding your legal position early can help avoid unnecessary complications.
At Lamb Brooks, our experienced Dispute Resolution and Commercial Property teams support landlords, businesses and property owners with lease-related matters and commercial property disputes.
For advice on a commercial property or service charge dispute, contact Lamb Brooks on 01256 844 888 or email enquiries@lambbrooks.com.
