It is well recognised that a landlord’s power to levy service charges and a tenant’s obligation to pay them are governed by the provisions in the parties’ lease. In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020] EWHC 1263 (Ch) the High Court was asked to award summary judgment in favour of a landlord in respect of the non-payment of a service charge.
The premises in question were let to Blacks, a large retail chain selling outdoor and leisure clothing and goods. The company had occupied the premises under two successive leases, the second of which was for a one-year term. Between October 2016 and September 2017, the landlord had levied a service charge of around £55,000. But, in the following year, the landlord sought to charge Blacks more than £400,000, in anticipation of the termination of its lease in May 2019.
Blacks claimed that this was excessive and that the amount demanded was not properly due under the lease. It suggested that some work was unnecessary or did not constitute “repairs” within the meaning of the relevant repairing covenants, and that the cost of the work had been increased by past failures to keep the premises in good repair. Consequently, the court had to decide whether a clause in the leases, which – except in the case of manifest or mathematical error or fraud – made the landlord’s certification of the amount of the service charge conclusive, was to be interpreted as excluding any challenge on the ground that the sums certified had been wrongly attributed to the service charge.
The obligation to prepare and provide the certificate was that of the landlord. However, the service charges had been certified by the landlord’s managing agent – a firm of surveyors, which was subject to professional obligations. But it had acted in its capacity as the landlord’s agent, and not as an independent expert. And, although the lease contained a provision enabling any dispute about the proportion of the service charge that Blacks was liable to pay to be referred to an independent expert, the lease did not make any provision for any other – and potentially far more significant – disputes about the service charge to be determined independently.
If the landlord were to be able to consider issues of law and principle and to make conclusive decisions about the correct construction of the lease and as to whether costs were properly claimed as service charges at all, the landlord would become the judge in its own cause. Consequently, the court ruled that the natural and obvious construction of the provision was that the service charge certificate was conclusive only in respect of “the amount of the total cost” of the services said to be comprised within the service charge.
In other words, the judge distinguished between questions about “the amount” of the costs, and questions as to whether such costs should properly have been incurred in the first place, within the scope of the lease. This meant that the tenant was entitled to raise issues about the scope of the service charges and that they were capable of determination by the court. So the claim could and should proceed to trial.
Allyson Colby, property law consultant
