Landlord and tenant – Service charges – Certification – Appellant landlord claiming service charges allegedly due from respondent tenant – Respondent serving defence and counterclaim – Appellant applying for summary judgment – Deputy master refusing application – Judge upholding decision – Appellant appealing – Whether landlord’s certificate of total cost of services conclusive as to cost incurred in providing services – Whether certificate conclusive of scope of services charged for – Appeal allowed
The appellant was the landlord of retail commercial premises at Chicago Buildings, on the corner of Whitechapel and Stanley Street in Liverpool. The respondent was a large retail chain selling outdoor and leisure clothing and goods which leased the premises.
Under the lease, the respondent covenanted to pay the yearly rent reserved by the lease and not to exercise or seek to exercise any right or claim to withhold rent or any right or claim to legal or equitable set-off or counterclaim. The lease provided for any dispute, as to the proportion of the total costs of services and expenses payable by the respondent, to be settled by expert determination.
Pursuant to paragraph 3 of schedule 6 of the lease, at the end of the service charge year the appellant was required to furnish a certificate of the respondent’s total liability for the year. In the absence of manifest or mathematical error or fraud, the appellant’s certificate was to be conclusive.
The appellant served a service charge certificate for the year ended 30 September 2018, certifying that more than £400,000 was due. The respondent objected that those service charges were excessive and not properly due.
The appellant brought proceedings to recover the service charges claimed and applied for summary judgment. The deputy master refused the application, holding that the certificate was conclusive as to the amount of the costs incurred but not as to whether such services fell within the scope of services for which the landlord was entitled to charge under the lease.
The judge upheld that decision on the basis that the respondent’s construction of paragraph 3 represented its natural and obvious meaning: the certificate was conclusive as to the amount of the total cost of the services but there was a distinction between a certificate establishing the amount of a cost and the question whether that cost should properly have been incurred: [2020] EWHC 1263 (Ch); [2020] PLSCS 98. The appellant appealed.
Held: The appeal was allowed.
(1) The landlord’s certificate was conclusive “as to the amount of the total cost and the sum payable by the tenant”. On any basis, that comprised at least two elements: (i) the amount of the total cost; and (ii) the sum payable by the tenant. Paragraph 3 rendered the certificate conclusive as regards the single figure of “such total cost”, which necessarily involved both elements going to make up that single figure. Treating the categorisation of the relevant services and expenses as not being conclusively determined by the landlord’s certificate (subject to mathematical or manifest error or fraud) would require express words to that effect or a necessary implication. There were no such express words and there were no grounds for a necessary implication to that effect.
(2) It was not easy to see how the amount could be certified unless the certifier formed some conclusion as to what items ought to be taken into account, and such a conclusion went to the existence of the indebtedness. The position was further illuminated by the fact that the certificate was, under paragraph 3, also binding as to the sum payable by the individual tenant. The judge was clearly, and understandably, influenced by the consideration that the appellant’s construction would make the landlord judge in his own cause. That was undoubtedly a matter which a tenant would be well advised to consider very carefully before agreeing a lease in those terms, particularly where the amount of the service charge was not capped by the terms of the lease. But it was not the function of contractual construction to save a party from an imprudent term. The purpose of interpretation was to identify what the parties had agreed, not what the court thought that they should have agreed: Arnold v Britton [2015] UKSC 36; [2015] AC 1619 followed. Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 and North Shore Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230; [2012] Ch 31 considered.
Paragraph 3 of schedule 6, construed in that way, did not produce a result that neither party could rationally agree. On the contrary, it made sense for the landlord, by avoiding what could be protracted and very detailed arguments about whether particular pieces of work and expenses did or did not fall within part II of schedule 6. The potential for such disputes was apparent from reading the categories of works and services envisaged by part II, even before getting to the open-textured terms of paragraph 13 of part IIA: “Providing all and any other services by the landlord acting reasonably in the interests of good estate management.”
(3) The judge was also influenced by the provision for expert determination in paragraph 6. She took the view that this provided a basis for concluding that the potentially more important issue of whether particular services or expenses fell within part II, or were excluded costs as itemised in paragraph 10 of part I, was to be left to the court, in the absence of an equivalent provision for expert determination. However, that sought to prove too much. The presence of the provision in paragraph 6 for an expert determination of the appropriate proportion, which fed directly into the certified sum payable by the tenant, did not carry with it a basis for saying that, in the absence of such a provision applicable to the services and expenses provided and incurred by the landlord, their correct categorisation must have been intended to be a matter for the court. In the absence of any language in the provisions to suggest that result, of which there was none, the more natural inference was that it was a matter for the landlord’s certificate.
(4) Accordingly, the appellant was entitled to summary judgment for the service charges claimed.
Richard Fowler (instructed by Pinsent Masons LLP) appeared for the appellant; Morayo Fagborun Bennett and Usman Roohani (instructed by Gateley plc) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd
