A service charge usually arises when a property is in multiple occupation, such as an office block or shopping centre.
Typical service charge items include the repair and maintenance of the external or structural parts of a building. Also, costs arising from repair and upkeep of common parts, together with managing agent's fees and a sinking fund. A service charge payment can be capped in order to limit the amount of a tenant's financial liability.
In addition some service charge costs have a limit to the amount of increase that applies during the term of a lease. For example, the charge cannot rise in excess of the movement in the Retail Price Index.
This provision enables the tenant to restrict future service charge liabilities.