Service charge disputes are common between landlords and tenants, and one of the most contentious aspects of the relationship. In particular, a certificated service charge sum demanded by the landlord is considered “conclusive” under certain leasehold provisions, but the tenant may consider the claimed sum to be excessive. This leads to the question of whether tenants should pay this sum as it may not be the amount they are actually required to pay or whether they should withhold payment and risk being sued for service charge debt, plus interest, plus costs.
What did the court decide?
Recently, the Supreme Court answered this question in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd. The case concerned a provision where the landlord was to provide a certificated demand as to the service charge payable by the tenant, and this was to be “conclusive” in the absence of “manifest or mathematical error or fraud”. The landlord argued for a ‘pay now, argue never’ approach, while the tenant argued for an ‘argue now, pay later’ approach.
The Supreme Court concluded that the certificate was conclusive as to the amount the tenant was required to pay the landlord in the time period required by the lease, but the tenant was entitled to challenge whether it was actually liable to pay the sums demanded thereafter. If successful, the landlord would be obliged to refund any sums that had not been properly chargeable. This commercial solution seeks to balance the interests of the landlord and tenant and to provide a workable application of otherwise potentially conflicting lease provisions.
Following this decision, landlords will need to use much more explicit language than the common wording, which was the subject of this case if they want to achieve the ‘pay now, argue never’ position. Tenants seeking to obtain/maintain rights to dispute service charge items will be able to point to this decision to assist their lease negotiations. The Supreme Court’s majority decision provides practical and legal advice for resolving service charge disputes and gives meaning to a clause, ensuring that the landlord isn’t out of pocket in relation to sums it had already incurred. It also allows tenants to raise a subsequent service charge challenge.
In conclusion, this decision will have a significant impact on the commercial property market, and landlords and tenants should be aware of its implications. It offers a fair solution to service charge disputes and emphasizes the importance of explicit language in lease agreements.
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Please note that this blog is not intended to be legal advice. This material has been prepared for informational purposes only and as general guidance. Is not intended to provide, nor should it be relied on for, legal or tax advice. You should consult your own advisors or seek professional independent advice before engaging in any transaction.