The Court of Appeal has ruled that where a tenant exercised its right to break under a lease, the tenant was entitled to any excess service charge monies that it had paid and which were held by the landlord to cover future expenditure.

The decision was based on the lease wording, which failed to provide for how excess service charge monies would be managed. The case highlights the importance of considering at the outset who is to be entitled to excess service charge monies when the lease is terminated, and then drafting the lease clearly to reflect the parties' intentions.

Transparency in the lease in respect of reserve service charge funds is an important aspect of the RICS Service Charge Code, which comes into effect on 1 April 2007.