In the case of Sara and Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd the Supreme Court upheld by a 4:1 majority the Landlord’s claim for unpaid service charge and that the service charge certificate was conclusive as to the sum following certification that the Tenant was liable to pay. However despite the lease having a set-off provision prohibiting any right to set-off or counterclaim, the Supreme Court held that Blacks/the tenant was not entitled to withhold payment but such wording did not prevent the tenant’s right to dispute the service charge bill and if necessary seek repayment - its purpose was solely to prevent the Tenant from withholding payment.
The facts
Blacks Outdoor Retail Ltd (the Tenant) rented commercial retail premises from Sara & Hossein Asset Holdings Ltd (the Landlord). The leases stated that the Landlord should provide a certificate each year to the Tenant setting out the service charge payable. The service charge schedule also provided for the service charge amount to be conclusive, absent mathematical or manifest error or fraud (the certificate provision).
The Tenant disputed the service charges and refused to pay. The Landlord issued proceedings and sought summary judgment. The Tenant argued that whilst the service charge certificate was conclusive as to the amount payable, it was not conclusive on its liability for the service charge. The High Court dismissed the Landlord’s application for summary judgment. The Landlord successfully appealed to the Court of Appeal. The Tenant appealed to the Supreme Court.
Supreme Court Judgment
By a majority of 4:1, the Supreme Court dismissed the Tenant’s appeal but held that the Tenant could pursue a claim in relation to its liability for the service charge which was characterised as ‘pay now, argue later’.
The reasoning for the Supreme Court’s majority decision was that there were other provisions in the leases which were inconsistent with the certificate provision, namely a provision stating that the amount of service charge payable depended partly on the proportion of the overall premises. Further, the leases contained a dispute mechanism provision in relation to the assessment of that proportion, which gave the Tenant up to 12 months to dispute a certificate which could ultimately alter the amount payable by the Tenant.
The Supreme Court’s interpretation was that whilst the certificate was conclusive as to the amount payable by the Tenant (subject to the permitted defences for the certificate to be absent mathematical or manifest error or fraud), payment did not prevent the Tenant from disputing liability.
Conclusion
The majority decision in the Supreme Court gives a tenant-friendly interpretation but also mitigates against cashflow problems for landlords. Landlords may now be at risk of more tenants disputing liability to pay service charges albeit it could be costly to pursue a claim. Both landlords and tenants should be keen to take the Supreme Court Judgment into consideration when negotiating the terms of service charge clauses.
FURTHER INFORMATION
If you have any questions about any of the real estate issues covered in this blog, please contact Peter Paul or any member of the real estate team
ABOUT THE AUTHOR
Peter Paul is a Senior Paralegal in the Real Estate and Construction team (Litigation). Peter joined Kingsley Napley in January 2021 from a national law firm. Peter assists a wide range of clients including landlords, managing agents, retailers and private individuals across all aspects of property disputes.
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