Service charge
A charge in a property lease covering shared costs such as building maintenance, insurance, and utilities.
Definition
Service charges are common in commercial property leases and typically pay for services rather than for the right to use the property. Where a charge pays for services it is a non-lease component: under IFRS 16 it is separated from the lease component and left out of the lease liability, unless the lessee has elected, by class of underlying asset, not to separate non-lease components. Whether an amount pays for a service depends on the contract; a recharge that transfers nothing to the lessee, such as some insurance or tax recharges, is not a separate component.
Why it matters
Including a service charge in the lease liability overstates it, unless the lessee has elected not to separate non-lease components. Identifying the service element requires reviewing the lease terms and, sometimes, management estimates, because stand-alone prices have to be estimated where they are not observable.
In AuditLease
AuditLease measures the lease on the base payment amount you enter, and has no separate service charge field today. Enter the amount allocated to the lease component, or the combined amount where you have elected not to separate for that class of asset; the label alone does not decide what to remove.
Related terms
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence, so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.