Service Charge Disputes in Mixed-Use Developments – Who Pays for What?

A building with shops or offices on the ground floor and flats above can be a great place to live and work. When it comes to the service charge, though, the mix of occupiers is often where the tension shows. Flat owners may resent paying towards shopfront repairs or extended-hours security. Businesses may object to contributing to a residential lift they never use. The law treats residential and commercial occupiers very differently, and a Court of Appeal decision in 2026 has shown that the line between the two is not always where people assume. This article explains the position in England and Wales.

Why mixed-use buildings are different

A service charge is your contribution to the landlord’s costs of maintaining, repairing, insuring and managing the building. In a purely residential block, everyone uses much the same services. In a mixed-use building, occupiers keep different hours and generate different levels of footfall and waste. They also rely on different parts of the building.

The lease decides how costs are shared. Common methods include floor area, fixed percentages and weighted formulas. Many leases also use separate cost “schedules”, so that residential costs fall only on the flats and commercial costs only on the business units. How fair the result depends heavily on how well the lease was drafted.

Two different rulebooks

Residential leaseholders

Residential leaseholders have strong statutory protection under the Landlord and Tenant Act 1985. Under section 19, costs can only be recovered if they were reasonably incurred and the services or works are of a reasonable standard.

Before carrying out major works, a landlord must follow the consultation process under section 20. This applies where any one leaseholder’s contribution would exceed £250. A similar process applies to long-term contracts costing any leaseholder more than £100 a year. If the landlord fails to consult and the tribunal does not grant dispensation, recovery is capped at those amounts.

There are further safeguards:

• Costs incurred more than 18 months before they are demanded are generally not recoverable, unless you were told in writing within that period that they would be charged later (section 20B).
• Every demand must come with a prescribed summary of your rights (section 21B).
• You can ask for a summary of costs and inspect the supporting documents.

Commercial occupiers

Commercial tenants have no equivalent statutory code. Their position depends almost entirely on the wording of the lease. The courts have sometimes been willing to read in a requirement that costs be fair and reasonable, but this is far less certain than the residential protections.

Industry standards do play a part. The Royal Institution of Chartered Surveyors’ Service charges in commercial property professional standard (2nd edition, effective from 31 December 2025) is mandatory for RICS members and regulated firms. It sets expectations on budgets, year-end accounts and fair apportionment. It does not override the lease, but it is influential when disputes arise.

When a commercial unit counts as a home

In Cloisters Business Centre Management Co Ltd v Anvari [2026] EWCA Civ 17, the Court of Appeal considered a self-contained unit in a converted Victorian convent in Battersea. The lease permitted use as offices with ancillary residential use. The unit had a kitchen and shower room but was actually being used for storage.

The court held that the unit was a “dwelling” for the purposes of the 1985 Act, so the statutory service charge protections applied. Residential use did not have to be the predominant permitted use: the fact that it was permitted only as an ancillary use did not prevent the unit from being a dwelling. The terms of the lease, considered alongside the nature and physical configuration of the premises, were more important than the way the unit happened to be used at the time.

The decision matters for live/work units and other mixed-use lettings where the lease allows some residential occupation. Landlords who assumed they were dealing with commercial tenants may find they needed to follow the residential rules, including consultation. Each case turns on its own lease and layout, so the decision does not bring every commercial unit within the protections.

Common flashpoints

Most disputes come back to apportionment: whether each occupier is paying a fair share for what they actually use. Typical arguments include:

• flat owners contributing to commercial refuse collection or signage
• retailers paying for residential concierge services or communal gardens
• landlords adding new or discretionary services that one group neither asked for nor uses.

The lease wording is critical. Where it allows the landlord to decide a “fair proportion”, a residential leaseholder can ask the tribunal whether the landlord’s split is reasonable. Where the lease fixes a percentage, the parties are generally bound by it. One limited exception is where the contributions across the flats add up to more or less than the whole cost. In that case, a flat owner may be able to apply to vary the lease under section 35 of the Landlord and Tenant Act 1987.

Insurance can also cause friction. Some commercial uses push up the premium for the whole building, and whether that increase can be passed to the business responsible depends on the lease.

Resolving a dispute

Start with the documents: the lease, the budget, the year-end accounts and the invoices behind them. Put your questions to the landlord or managing agent in writing. Many disputes stem from poor information rather than genuine overcharging.

Be cautious about withholding payment altogether. Paying the undisputed part while challenging the rest is usually the safer course, and you should take advice before withholding anything.

Residential leaseholders in England can apply to the First-tier Tribunal (Property Chamber) under section 27A for a ruling on whether charges are payable and reasonable. In Wales, the equivalent body is the Leasehold Valuation Tribunal. The tribunal can also be asked to stop the landlord adding its legal costs to the service charge (section 20C). Commercial disputes are resolved through negotiation, mediation, any expert determination process in the lease, or the courts.

Where management is the real problem, the Right to Manage may be an option. Since 3 March 2025, a building can qualify where up to 50% of its internal floor area is non-residential, up from 25%. This brings many more mixed-use buildings within reach. Subject to the other statutory qualifying conditions, qualifying flat owners can then take over management of the building through a company they control.

What is changing

The Leasehold and Freehold Reform Act 2024 contains wider service charge reforms, most of which are not yet in force. In July 2026 the government published its response to the consultation on how they will work in England. It confirmed:

• standardised demand forms accompanied by a budget
• an annual report on the building
• standardised accounts
• a right to request information going back six years
• clearer disclosure about building insurance
• a requirement for court or tribunal approval before a landlord’s litigation costs can be recovered through the service charge.

The government intends to lay the regulations later in 2026, with changes taking effect from 2027. Welsh Ministers are deciding their own approach. Separate proposals to reform the section 20 major works process, require reserve funds and introduce qualifications for managing agents are still under consideration, with no decision yet.

Getting advice

Whether you own a flat, run a business from the ground floor or own the building itself, the answer to a service charge dispute almost always starts with the lease. If you have concerns about a demand, or you are about to buy or let space in a mixed-use development, contact your solicitor for advice on where you stand. Gavin Lampert, who has written this blog, has current instructions challenging service charges in a mixed residential/commercial unit where he is acting for the commercial leaseholders, and is currently defending such a claim over £100,000k for disputed service charges.

Speak to Our Dispute Resolution Team

Service charge disputes in mixed-use buildings turn on the wording of the lease and on which set of rules applies to each occupier, and the Court of Appeal’s decision in Cloisters shows that the answer is not always obvious. Getting the analysis right at the outset, before any payment is withheld or a tribunal application is made, puts you in the strongest position.

Whether you are a flat owner questioning a demand, a business occupier being asked to pay for services you do not use, or a landlord or managing agent facing a challenge, our team would be pleased to help.

Call 020 8221 8000, email info@bowlinglaw.co.uk or get in touch online. We will talk you through your options and take the pressure off. You can also find out more about our dispute resolution services or, if you are buying or letting space in a mixed-use development, our commercial property services.

This is not legal advice; it is intended to provide information of general interest about current legal issues.