Service Charges in Commercial Buildings: Calculation and Transparency

In a shopping mall, a market building or an office tower, the rent is only part of what a tenant pays. On top of it comes the service charge: the tenant's share of the cost of running common areas, security, cleaning, lifts, escalators, generators, common electricity and building management. When service charges in commercial buildings are calculated fairly and shown openly, tenants accept them. When they are vague, arbitrary or rise without explanation, they become the biggest source of conflict between owners and shopkeepers.

This guide explains, for Bangladeshi market owners, mall managers and commercial landlords, how to build a service charge budget, which costs belong in it and which do not, how to split it between tenants of different sizes, how to handle year-end adjustments and how to present it transparently. It includes an illustrative calculation, a comparison of apportionment methods and a list of common mistakes. Tenants will also find it useful for understanding what they are being asked to pay.

What Is a Service Charge in a Commercial Building?

A service charge (also called common area maintenance or CAM charge) is a recurring payment by tenants to cover the owner's or management's costs of operating the shared parts of a building. It is not rent and should not be a hidden profit centre. The principle is simple: the building incurs real costs for shared services, and each tenant pays a fair share of those costs.

In Bangladesh, commercial service charges are commonly quoted either as a fixed monthly amount per shop or office, or as a rate per square foot of the tenant's space per month. Large malls and corporate office towers tend to use per-square-foot rates; traditional markets often use fixed per-shop amounts.

What Costs Should the Service Charge Cover?

The lease should list exactly which costs can be included. A typical list for a Bangladeshi commercial building:

• Security: guards, supervisors, CCTV maintenance.
• Cleaning: cleaning staff, materials, toilet supplies, garbage removal.
• Common electricity: corridors, stairs, lifts, escalators, common air conditioning, external lighting, signage lighting of the building.
• Generator: fuel, servicing and operator salary for backup power to common areas (and sometimes to shops, which is better billed separately).
• Lifts and escalators: maintenance contracts and repairs.
• Water and pumps: WASA bill for common use, pump electricity and repairs.
• Fire safety: extinguisher refills, alarm and sprinkler maintenance, drills.
• Management staff: building manager, accountant or office assistant working for the building.
• Minor repairs in common areas: bulbs, taps, tiles, paint touch-ups.
• Insurance of common parts, if the lease allows it.
• Sinking or reserve fund for major future replacements, if agreed.

Costs that usually should NOT be in the service charge

• Major structural works or original construction defects, which are normally the owner's capital cost.
• Costs of letting vacant shops, such as marketing or agent fees.
• The owner's personal expenses or other businesses.
• Income tax on the owner's rent.
• Costs already recovered from someone else, such as a telecom tower operator paying for its own electricity.
• A tenant's own electricity, which should be metered and billed separately.

Whether holding tax is included depends on the lease. Some commercial landlords recover it via service charge; others treat it as their own cost covered by rent. Either approach can work if it is written in the agreement. Our explainer on holding tax covers what that tax is.

Step 1: Build the Annual Budget

A fair service charge starts with a realistic annual budget, not a number chosen because "the market next door charges that". Use last year's actual costs, adjust for known changes (salary increases, fuel prices, new contracts) and add a modest contingency.

For example (illustrative): a 6-storey shopping building in Dhaka with 40,000 sq ft of lettable shop area.

Step 2: Choose an Apportionment Method

Apportionment means deciding what share of the total each tenant pays. There are four common methods.

Worked per-square-foot calculation

Continuing the illustrative example: Tk 500,000 per month divided by 40,000 sq ft gives Tk 12.50 per sq ft per month.

• A 200 sq ft shop pays 200 x Tk 12.50 = Tk 2,500 per month.
• A 650 sq ft showroom pays 650 x Tk 12.50 = Tk 8,125 per month.
• A 3,000 sq ft supermarket anchor pays 3,000 x Tk 12.50 = Tk 37,500 per month.

What about vacant shops?

This is where honesty matters. If 5,000 sq ft of the 40,000 sq ft is vacant, the owner should normally bear the service charge share for the vacant area (5,000 x Tk 12.50 = Tk 62,500 per month) rather than dividing Tk 500,000 across only 35,000 sq ft of occupied space, which would push each tenant's rate up to about Tk 14.29. Spreading vacancy costs onto existing tenants is one of the fastest ways to lose their trust, unless the lease explicitly and fairly provides otherwise.

Step 3: Advance Billing and Year-End Reconciliation

Most commercial buildings bill a monthly service charge in advance based on the budget. At the end of the financial year, actual costs are compared with the amounts collected:

• If actual costs were lower, tenants receive a credit against future charges (or a refund if they are leaving).
• If actual costs were higher, the owner may issue a balancing charge, but only if the lease allows it and with full supporting statements.

For example (illustrative): the building budgeted Tk 6,000,000 but actual costs were Tk 5,640,000, a saving of Tk 360,000. The 200 sq ft shop's share is 200 / 40,000 = 0.5%, so its credit is 0.5% x Tk 360,000 = Tk 1,800. Crediting this, even if small, shows tenants the system is fair.

Many smaller Bangladeshi markets use a fixed service charge with no reconciliation. That is simpler, but the owner then carries the risk of cost increases and should review the rate annually with a written explanation.

Separating Generator and Air Conditioning Costs

Generator backup and central air conditioning are the two biggest sources of service charge disputes in Dhaka malls, because tenants use them very differently. A small mobile phone shop uses little power; a restaurant with ovens and fridges uses a lot.

• Bill tenants' own electricity through individual meters or sub-meters.
• If shops receive generator power, consider a separate generator charge based on connected load or metered consumption, rather than hiding it in a flat service charge.
• For central AC, either charge by area served, by operating hours or through BTU/energy meters where installed.

Our guide on electricity sub-meter billing explains how to set a fair per-unit rate.

Transparency: What Tenants Should See

Transparency is the core of a good service charge regime. At a minimum, provide:

1. The annual budget by cost head, before the year starts.
2. A monthly or quarterly statement showing collections and main expenses.
3. The apportionment basis and each tenant's area or share.
4. A year-end statement comparing budget and actuals, with credits or balancing charges.
5. Access to invoices on request for major items.

Sample notice to tenants: "Dear Tenants, the service charge budget for July to June has been prepared. The total monthly budget is Tk 500,000 against 40,000 sq ft of lettable area, a rate of Tk 12.50 per sq ft. The increase from last year is mainly due to higher guard salaries and common electricity costs. A detailed breakdown is available at the management office. Thank you for your cooperation. - Building Management"

Writing Service Charge Clauses in the Lease

A clear lease clause prevents most disputes. It should state:

• The list of services and cost categories included.
• The apportionment method and the tenant's area or percentage.
• Whether the charge is fixed or budget-based with reconciliation.
• The payment date, method and any late fee.
• How and when the rate can be revised and how much notice is given.
• How vacant space and major capital works are treated.
• Whether VAT or any other tax applies to the charge, which should be confirmed with a tax adviser under current VAT rules.

For more on leases, see the commercial lease agreement guide.

Disclaimer: This is general information, not legal or tax advice. VAT treatment of rent and service charges and other tax matters should be checked with the NBR or a qualified tax lawyer before you finalise leases or invoices.

Collecting Service Charges Efficiently

• Issue service charge on the same invoice as rent, but as a separate line, so tenants see both clearly.
• Set one due date for all tenants, for example the 7th of each month.
• Accept bank transfers and mobile payments and give a receipt for every payment.
• Keep a due list and send polite reminders a few days after the due date.
• Do not cut off essential services such as common lighting or access as a pressure tactic; follow the lease and the law.

Reserve (Sinking) Funds for Major Works

Lifts, escalators, generators, fire pumps and roofs eventually need replacement, often at a cost of many lakh taka. If the lease allows it, a small monthly contribution to a reserve fund spreads that cost over years instead of hitting tenants with a sudden special levy.

For example (illustrative): an escalator expected to need a Tk 2,400,000 overhaul in 8 years requires about Tk 2,400,000 / 96 months = Tk 25,000 per month set aside. Over 40,000 sq ft, that adds Tk 0.625 per sq ft per month to the rate.

• Keep the reserve in a separate bank account, not mixed with operating money.
• Report the balance to tenants at least yearly.
• Agree in writing what happens to a departing tenant's contributions; in many arrangements they stay with the building.

Handling Service Charge Disputes

Even in well-run buildings, disputes arise. A calm process helps:

1. Listen first. Ask the tenant exactly which item or amount they dispute.
2. Show the evidence. Provide the relevant invoices, meter readings or area measurements.
3. Correct genuine errors quickly and issue a credit note; a small correction builds more trust than a long argument.
4. Record the outcome in writing so the same issue does not repeat.
5. Use a tenants' meeting for issues affecting many shops, such as a new security contract or a big increase in common electricity.
6. Seek legal advice only for persistent non-payment or a real contractual disagreement.

Common Mistakes

• Using service charge as hidden rent. Tenants eventually compare notes and trust collapses.
• No written list of included costs. Every new expense becomes an argument.
• Charging tenants for vacant space. The owner should normally carry vacancy costs.
• Increasing rates without explanation. Always show why.
• Mixing generator and AC costs into a flat rate when usage varies hugely.
• Inaccurate area measurements. Measure every unit once, properly, and record it.
• Poor records. Without receipts and statements you cannot defend the charge.

A Checklist for Owners and Mall Managers

• Measured area of every unit on file.
• Written list of service charge items in every lease.
• Annual budget prepared before the financial year.
• Separate metering for tenant electricity and, where possible, generator and AC.
• Monthly statement shared with tenants.
• Year-end reconciliation with credits or balancing charges.
• Vacant space costs borne by owner.
• Reserve fund held separately, if collected.

Final Thoughts

Service charges in commercial buildings do not have to be a battleground. When the budget is real, the list of costs is written down, the apportionment is based on measured area or actual usage, vacancies are carried by the owner and statements are shared openly, most tenants accept the charge as part of doing business in a well-run building. The reward for the owner is lower turnover, fewer disputes and a reputation that attracts better tenants.

If you manage a market or mall with many shops, keeping rent, service charge, sub-meter electricity and expenses in one system makes transparent statements much easier. Bariwala ERP supports buildings, floors and shop units, bulk monthly invoices, sub-meter electricity billing, payments with receipts, due lists, SMS reminders and income and expense reports, which together help you show tenants exactly where their money goes.