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Service charge certificates - Are they conclusive?

View profile for Davina Puran
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A consideration of the recent High Court’s recent decision in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd (2020) as to whether a tenant can refuse to pay a service charge on the basis that the expenses incurred by the landlord was not within the landlord’s repair obligations in the lease, despite the lease confirming the landlord’s service charge certificate was to be ‘conclusive’.

Facts

Blacks Outdoor Retail Ltd (‘Blacks’) was the tenant of commercial premises at Chicago Buildings, Whitechapel and Stanley Street. The landlord, Sara & Hossein Asset Holdings Ltd (‘S&H’) sought to recover outstanding service charge arrears from Blacks, having produced a certificate of the total cost of services and expenses incurred during the year. The lease provided that such certificate was conclusive as to the service charge due, save in cases of manifest or mathematical error or fraud.

The service charge due amounted to £55,000 in the first year and £400,000.00 in the following year. Blacks, who was under an obligation to pay a fair and reasonable proportion of the total service costs, refused to pay for both years. It was argued that the costs of works that S&H sought to recover did not fall within the landlord repair obligations and so were not properly due under the lease.

S&H argued that Blacks was not entitled to refuse payment as the lease stated the service charge certificate was conclusive.

The Judgment  

The court found in favour of Blacks. It held that whilst the certificate was conclusive as to the amount of costs incurred, this did not mean it was conclusive as to whether the costs should properly have been incurred under the lease. The tenant was therefore entitled to challenge these costs.

In reaching its decision, the court also looked at the context of the lease. The lease contained a provision allowing expert determination of a dispute as to the proportion of the service costs paid by the tenant. The court considered it would therefore be inconsistent to have a dispute mechanism over concerns about the proportion paid and not for the more significant question of the headline figure of the total costs and services.                                

What does this mean for tenants?

Most commercial leases will contain a clause that the service charge certificate is ‘conclusive’. While this judgment concerned the specific wording in the Blacks lease, the case shows us that ‘conclusive’ does not necessarily mean conclusive of all matters. Landlords should therefore be careful to ensure that the costs they are seeking to recover actually fall within the service charge provisions in their leases.

If you would like to discuss the service charge provisions in your lease, please contact Robert Souber in our Commercial Property team.