The Importance of Contractual Compliance in Service Charge Recovery
A recent judgement in Budgens Stores Ltd v Three Rivers Property Investments Ltd [2026] EWCC 60 provides a reminder that when it comes to service charges, the right to recover costs depends not only on the expenditure itself, but also on compliance with the contractual cost recovery mechanism agreed in the lease.
The case concerned the landlord’s attempt to recover almost £71,000 of service charge arrears for repair and maintenance works. Under the lease, the landlord was required to serve a Provisional Charge Notice (PCN) setting out the nature of the proposed works, the estimated cost, the tenant’s provisional contribution and supporting information before the works were carried out. Budgens were required to pay the provisional charge within 28 days. Once the works had been completed, the landlord was required to issue a final notice confirming the actual costs incurred, the tenant’s contribution and any balancing adjustment. Any excess of the provisional charge over the final charge would be refunded within 14 days, with the tenant required to pay the shortfall within the same period. The tenant also had the right to dispute the landlord’s decision to serve a PCN through the lease’s dispute resolution mechanism.
The Court’s Decision
At first instance, the court found that a PCN was not a precondition to recovering the costs and could be served after the works had been completed. However, this decision was overturned on appeal.
The appeal court found that the lease wording was clear. References to an “estimated cost” and a “provisionally determined” contribution meant the PCN had to be served before the works were undertaken. The court held that the PCN was not simply a mechanism for collecting payment on account. Rather, it provided the tenant with advance notice of the proposed works and an opportunity to object before expenditure was incurred. As such, it formed part of the contractual scheme agreed by the parties when they entered the lease.
A Commercial Equivalent of Section 20?
One of the more interesting aspects of the case is that the PCN provisions appear to incorporate concepts familiar from the residential sector.
Whilst Section 20 consultation requirements do not apply to commercial leases, the clause effectively required the landlord to provide advance notice of proposed expenditure and gave the occupier an opportunity to challenge the works before costs were committed. The court’s decision reinforces that where parties choose to include these types of protections in a commercial lease, they will be enforced in accordance with their wording.
What Does This Mean for Occupiers?
Many service charge reviews focus on whether costs are reasonable, correctly apportioned and supported by appropriate evidence.
The Budgens case highlights an equally important question:
Has the landlord complied with contractual cost recovery mechanism agreed in the lease?
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