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Thursday 26th November 2020 Danielle Cohen 

Service charge provisions in commercial leases

The recent case of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd (2020) presents some interesting findings regarding the interpretation of service charge clauses.

The facts of the case

The tenant had entered two successive leases with the landlord. Both the leases contained identical clauses for the supply of services by the landlord and the payment of service charges by the tenant.

The tenant was required to make quarterly payments on account for service charges and at the end of every service charge year the landlord would provide a certificate of the actual service charge expenditure for that year. This practice is usual in commercial leases.

A dispute arose over the amount of service charge payable for the previous two years and the landlord brought a claim against the tenant for arrears.

The High Court was asked whether the lease wording took priority over the tenant’s response that the certified sums were not properly due by way of service charge.

The lease clauses

The case focused on two clauses in the leases. The first provided, in relation to service charge, that the Landlord “shall … furnish to [the Tenant] … a certificate as to the amount of the total cost and the sum payable by [the Tenant] and in the absence of manifest or mathematical error or fraud such certificate shall be conclusive” (the Certification Provision), while by the second, the Tenant covenanted “… 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 (save as required by law)” (the No Set-Off Provision). The Tenant did not contend that the certificates served by the Landlord were vitiated by manifest or mathematical error or fraud.

The decision - High Court

The High Court held that the Tenants were entitled to challenge some of the works claimed by the landlord under the service charge provisions, even though the wording in the lease states the ‘landlord’s service charge certificate was conclusive’. The case went to the appeal.

The decision - Court of Appeal

The Court of Appeal found that the Landlord’s certificate was conclusive and the Tenant could not challenge the service charge due, to a clause stating that the landlord’s certificate was conclusive.

This decision highlights the importance of precise drafting in leases and will no doubt be a disappointment for tenants.

For more information on this article or to discuss your property matters generally further, please contact Danielle Cohen by email dcohen@jpclaw.co.uk telephone 020 7644 7264 or contact her on LinkedIn.

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