Landlord’s Service Charge Certificate held to be conclusive

03 December 2020

Author: Yvonne McMahon
Practice Area: Real Estate

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Commercial landlords will welcome the recent Court of Appeal decision confirming that a tenant is unable to challenge service charge costs where the lease expressly provides that a landlord’s service charge certificate is conclusive in the absence of manifest or mathematical error or fraud.

The background to Sara and Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020] EWCA Civ 1521, concerned a retail tenant who had covenanted in its lease to pay a “fair and reasonable proportion” of the total service charge cost. The landlord was obliged to provide a service charge certificate detailing the total cost and sum payable by the tenant. The lease further provided that in the absence of manifest or mathematical error or fraud, such service charge certificate is conclusive.

The tenant had typically paid around £55,000 per year in service charges due pursuant to its lease. The service charge liability subsequently significantly increased to over £400,000. The landlord issued a service charge certificate and the tenant did not pay the sums claimed, disputing the costs. The landlord issued proceedings and the tenant counter-claimed challenging the landlord’s service charge certificate on numerous grounds including that some of the works were unnecessary and that some of the costs related to works that did not fall within the landlord’s repairing obligations.

The High Court held that whilst the service charge certificate was conclusive as to the total costs payable by the tenant, it was not conclusive as to whether the costs properly fell within the scope of the service charge payable by the tenant.

The Court of Appeal overturned the High Court’s decision and decided that the landlord’s service charge certificate was conclusive as to both the scope of services included and the total service charge payable by the tenant. The lease contained clear wording that the service charge certificate was to be conclusive and in the absence of clear and express wording to the contrary, the Court of Appeal disagreed with the High Court’s position that a certificate could be conclusive as to the amounts incurred but not as to what should be included.

Whilst each case will be determined on its particular facts, this is a significant case and will be widely welcomed by commercial landlords given the current economic uncertainty due to the impact of the pandemic. The decision gives commercial landlords certainty that a tenant can only seek to challenge service charge costs within the confines of the lease wording. Where, as in this particular case, the landlord’s service charge certificate was conclusive, the tenant could only challenge the service charge costs if there was a manifest or mathematical error or fraud.

It is also a reminder to all parties of the importance of precise drafting in leases as once again the Court reaffirmed that it is not a matter for the Court to rewrite an onerous term that has been agreed between the parties.

For further information please contact the Real Estate team at Carson McDowell.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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