In Sara & Hossein Asset Holdings Limited (a company incorporated in the British Virgin Islands) -v- Blacks Outdoor Retail Limited [2023] UKSC 2 the Supreme Court considered 2 successive leases of retail commercial premises and in particular the service charges claimed by Sara, the landlord, from its tenant, Blacks.
Blacks, the retail chain selling outdoor and leisure clothing and goods, paid the main rent and some of the service charges but did not pay the service charges for the years 2017-2018 and 2018-19. For 2017-18 Sara certified that over £400,000 was payable (the previous year the charge was only £55,000), but knew that Blacks would be terminating its lease in May 2019.
The service charge provisions required Sara to supply Blacks, on a yearly basis, with a certificate stating the “…total cost and the sum payable by the tenant…”. This certificate was conclusive “…in the absence of manifest or mathematical error or fraud…”. The terms of the leases prevented Blacks from withholding payment, claiming any set-off or counterclaim.
The Supreme Court recognised a landlord’s need for certainty and the ability to recover the cost and expenses that it has incurred without significant delay or dispute. However, payment of a certified sum deprives the tenant of recourse to the courts on important matter of potential dispute, save under the narrowly framed grounds specified in the lease e.g. fraud. This leaves the landlord as judge – pay now, argue never.
The Supreme Court, by a majority of 4 to 1, held that a landlord’s certificate in these terms was conclusive as to the sum payable by the tenant but not as to the underlying liability for the service charge. The tenant is entitled to bring a claim seeking repayment of a cost which it is contended has been improperly charged – pay now, argue later. However, in his dissenting judgment Lord Briggs, who has considerable experience in landlord and tenant matters, described the ‘pay now, argue later’ construction as “an imaginative creation”. He stressed that the parties could have agreed lease terms to meet most of their respective concerns.
This decision is to be welcomed by commercial tenants, who will now have the ability to pursue a counterclaim challenging and seeking to recover the service charges that have been paid. At the same time this highlights the need for carefully negotiated lease terms. These leases were prepared before the RICS Statement on Service Charges in Commercial Property, which was effective from April 2019.
For further information/advice or assistance with service changes in commercial leases with a property tenant, please contact Ramsdens Solicitors on 01484 821500, or send an email to info@ramsdens.co.uk.