A Conclusive Conclusion for Service Charge Certificates?

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In a case that will be welcomed by landlords, the Court of Appeal has ruled that a service charge statement was conclusive both as to the landlord’s costs and the scope of the services.

Background

The case concerned Blacks, the outdoor retailer, who was the tenant under a commercial lease. Under the service charge clause:

  • the landlord was obliged to calculate “the total reasonable and proper cost” it incurred in providing various services;
  • Blacks was obliged to pay a “fair and reasonable proportion” of the total cost; and
  • the landlord was obliged to provide a service charge certificate detailing the total cost it incurred and the sum payable by Blacks and that “such certificate shall be conclusive”.

In January 2019, the landlord issued a service charge certificate for a much larger sum than it had in previous years. Blacks challenged the certificate on various grounds including that it contained unnecessary works and matters outside the scope of the relevant repairing obligations. The landlord subsequently issued proceedings to recover the unpaid service charge.

The High Court held that the certificate was conclusive as to the total cost incurred by the landlord in providing various services, but it was not conclusive as to whether those services fell within the scope of the service charge clause.

The decision

The Court of Appeal overturned the decision of the High Court. It held that the certificate was conclusive on both points. To be otherwise would require clear and express wording to that effect.

Lessons learned

Clauses which seek to make a service charge certificate conclusive are common in commercial leases.
This judgment will be welcomed by landlords, as (whilst each case will need to be determined on its facts) this decision should avoid opening the floodgates on challenges by tenants on historic service charges. It will also give landlords certainty to be able to operate service charge provisions without fear of challenge by tenants although we have yet to learn whether the case will be appealed.

The case is a reminder to all parties to pay close attention to the detail of the wording and the mechanics of service charges. As the Court commented, it is not the job of the courts to save the parties from an imprudent term which they have agreed.

Case: Sara and Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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