Tenant wins challenge against Landlord’s ‘conclusive’ service charge statement

In the recent case of  Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020] EWHC 1263 (Ch), the High Court held that a tenant could challenge the service charge sums due under their lease, despite a clause in their lease stating that the landlord’s service charge certificate was ‘conclusive’ save for absent manifest or mathematical error or fraud.

Blacks Outdoor Retail Ltd (Blacks) was the tenant of commercial premises at Chicago Buildings, Whitechapel and Stanley Street.  Their landlord – Sara & Hossein Asset Holdings Ltd (S&HAH Ltd) instigated proceedings against them for non-payment of service charge over the previous two years.  The service charge amounted to £55,000 in the first year and £400,000 in the second year.  S&HAH Ltd asserted that they had produced a certificate in respect of such sums and that in accordance with the terms of the lease, such certificate was ‘conclusive’.  However, Blacks argued that the costs S&HAH Ltd were seeking to recover were in respect of modernisation and improvement works and as such were not recoverable as service charge, as they did not fall within the landlord’s repairing obligations under the lease.

The High Court found in favour of Blacks and held that, the service charge certificate was conclusive as to the amount of the service charge, but was not conclusive as to whether those costs actually fell within the scope of the service charge payable by the tenant under the lease.  Accordingly the tenant was entitled to challenge the service charge costs.

While this case turned on the specific wording of Black’s lease, it nonetheless provides a useful reminder that a clause purporting that a service charge certificate is ‘conclusive’ will not be conclusive where those sums were never properly due.  Landlords should carefully consider whether the sums they are seeking to recover actually fall within the service charge provisions of their lease, particularly in respect of improvement and modernisation works.  Similarly, tenants should scrutinise any certificates/demands for payment so that they only pay what is due under their lease.