A landlord’s certificate as to the service charge payable by its commercial tenant is conclusive as to what the tenant is required to pay subject to error or fraud but payment of the certified sum does not preclude the tenant from later disputing liability for that payment.
The Supreme Court has dismissed the tenant’s appeal against summary judgment for commercial service charges in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2.
Blacks rented commercial premises in Liverpool from S&H under consecutive leases dated 2013 and 2018, which stated that the landlord should each year provide a service charge certificate “as to the amount of the total cost and the sum payable by the tenant” which was to be “conclusive” in the absence of permitted defences of “manifest or mathematical error or fraud”.
Blacks refused to pay service charges of almost £408,000 for the years 2017-18 and 2018-19 claiming that the charges were excessive and included items which were not properly due under the leases. S&H’s application for summary judgment failed, as did a first appeal. The Court of Appeal allowed a second appeal.
S&H’s argument that its certificate was conclusive as to Blacks’ service charge liability subject to the permitted defences – a “pay now, argue never” regime – while consistent with the certification provision was inconsistent with other lease provisions. The sum payable was based on the proportion of the premises occupied by the tenant, for which there was a detailed assessment mechanism which might alter the sum due.
Blacks were also entitled to inspect receipts, invoices and other evidence for up to 12 months after the certificate was provided. If S&H were correct, such rights would be superfluous save for identifying any of the permitted defences. The permitted defences were in any event very narrow and it would be surprising if the parties had agreed that arguable issues as to liability could be determined conclusively by the landlord as “judge in his own cause”.
Blacks argued that the certificate was conclusive only as to the landlord’s costs and not as to the sum payable by the tenant – an “argue now, pay later” regime – but this contradicted the meaning of the certification provision that the certificate was conclusive both as to the “amount of the total cost” and “the sum payable by the tenant”.
The majority of the Supreme Court found an alternative interpretation which was consistent with the contractual wording and avoided both surprising implications and uncommercial consequences: the “pay now, argue later” regime. The certificate was conclusive as to what the tenant was required to pay following certification subject only to the permitted defences but the tenant was not precluded from later disputing liability for that payment.
S&H was thereby assured of payment of the service charge without protracted delay or dispute but full effect was given to Blacks’ inspection rights. Lord Briggs, dissenting, endorsed the “pay now, argue never” regime.
Louise Clark is a property law consultant and mediator
