The Supreme Court has handed down an important judgment in relation to service charges in leases and the conclusiveness of a landlord’s service charge certificate. We examine the decision in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd.
Facts of the case
The dispute relates to service charges of more than £400,000 levied by the landlord (Sara & Hossein Asset Holdings Ltd) on the tenant (Blacks Outdoor Retail Ltd) for premises in Liverpool and Whitechapel, London.
The leases said the landlord’s certificate setting out the annual service charge would be “conclusive” save for any manifest or mathematical error or fraud. The tenant’s liability was to pay “a fair and reasonable proportion” of the service charge.
The tenant refused to pay the service charges saying the sums set out in the certificates were excessive and included items not properly due. The landlord said its certificates were conclusive in respect of both the service charge costs it had incurred and the amounts payable by the tenant. The tenant accepted that the certificates were conclusive regarding the costs incurred by the landlord but not in respect of the sums it had to pay.
Supreme Court judgment
The Supreme Court upheld the summary judgment in the landlord’s favour given by the Court of Appeal. The court said the landlord’s certificate was conclusive as to what service charge the tenant must pay following receipt of the landlord’s certificate.
However, the Supreme Court went on to say that the certificate was not conclusive as to the tenant’s liability for the service charge. In effect, the tenant could not refuse to pay the sum shown in the certificate but, after paying it, could bring a claim disputing its underlying liability to pay the service charge. The court said the no set-off provision in the leases did not prevent the tenant from making such a claim, it merely prevented the tenant from delaying payment.
This has been described as a “pay now, argue later” compromise by the court in that it enables the landlord to receive the sum claimed promptly but allows the tenant to then dispute its liability to pay.
Overall, the judgement highlights how careful parties must be when entering into leases, as the contractual provisions are paramount. As Lord Neuberger emphasised in Arnold v Britton  UKSC 36 (another Supreme Court decision relating to service charges), it is not the court’s job to save contacting parties from imprudent terms: “The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.”
If you require further information on this article, please contact Daniel Broughton at [email protected].
Disclaimer: The above is merely general guidance and should not be relied on as formal advice. We suggest you take professional advice before taking any action in relation to the issues discussed above.