Management consultancy McKinsey has been ordered to pay £2.3m in service charges to its former landlord of office space in the flagship Criterion Building in London’s Piccadilly Circus. McKinsey leased offices there from 1993 until it moved to a new 100,000 sq ft office in Holborn in 2018.
Landlord of the premises at One Jermyn Street, SW1, Criterion Buildings Ltd, claimed that McKinsey failed to pay service charges due under the terms of its lease. However, McKinsey argued that it had withheld payments from 2014 because they did “not reflect a due proportion of the service provided”.
In a trial heard remotely last October, McKinsey disputed the claim on four main grounds, including raising a question of whether the landlord had properly apportioned the service charges due between the various tenants of the building in accordance with the lease.
Today, Judge Paul Matthews rejected the defendant’s case and found in favour of the landlord.
He said: “In my judgment, the defendants fail on all the points that they raised by way of defence to this claim, and the claim itself succeeds.”
Alice Hawker of Selborne Chambers, who acted along with Nicholas Trompeter for the successful landlord, said: “One of the particularly interesting aspects of the judgment relates to a landlord’s decision-making power when apportioning service charges between tenants.
“Under the lease in this case, the ‘due proportion’ of the service charge payable by the tenant was a ‘a fair proportion to be determined… by the landlord’. Judge Matthews accepted the landlord’s submission that the question of what amounted to a ‘fair’ proportion was one for the landlord not the court.”
Christopher Sullivan and Colin Edgar, partners at Hollis, the experts appointed by Criterion, added: “The judgment provides us with a perfect example of why the majority of disputes regarding commercial service charges are more often than not kept away from the courts.
“The ruling will be a wake-up call for tenants that landlords can determine a fair proportion of the service charge, and can recover properly incurred costs even close to lease expiry.
“Landlords should take reassurance from the fact that, assuming that they have taken the right advice upfront and acted in a way that they can demonstrate, through independent expert witnesses, as fair, should disputed service charge claims go to court, they have a strong chance of a judge ruling in their favour.”
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