Pay Now, Argue Later! Can a Landlord Decide How Much Service Charge a Tenant Should Pay?

Sara & Hossein Asset Holdings v Blacks Outdoor Retail

The Supreme Court has just released its decision about whether or not a landlord can decide “conclusively” how much service charge a tenant should pay.

Facts

Blacks (the outdoor retailers) had two leases of stores in Liverpool.  The landlord increased the service charge from around £55,000 in 2017 to over £400,000 in 2018.  Blacks claimed that some of the claimed costs in 2018 fell outside the terms of the lease. It refused to pay.

The lease contained a fairly common provision saying that the landlord should provide 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”.

Argue never or argue now?

The landlord contended that, unless the tenant could show fraud or an obvious error (such as arithmetic), it was unable to challenge the landlord’s decision about “the sum payable by the tenant”.  The court called this approach “pay now, argue never”.

The tenant was understandably rather unhappy at the suggestion that it might not be able to challenge the landlord’s thought process. Instead, it argued that the certificate was only a preliminary statement. It would be subject to further debate and challenge where appropriate.  The court called this approach “argue now, pay later”.

Pay now, argue later – Supreme Court Service Charge Ruling

The court decided to take a middle ground, which it called “pay now, argue later”.  The certificate was conclusive of the amount the tenant had to pay upfront, to preserve the landlord’s cash flow.  After payment, however, the tenant could bring a claim for a refund if it turned out that the landlord had charged sums that it was not entitled to charge.

Arguing later starts now…

Although the landlord technically won the case, this is arguably a much better result for the tenant than most landlords would have hoped for.  Almost every commercial tenant pays a service charge and they are often contested. If the landlord had lost, it could have opened the floodgates for tenants to revisit the last six years’ worth of service charge accounts and payments (or even more). The “argue later” part of the judgment does introduce some scope for these kinds of claims. However, it is much more limited. The tenant cannot argue that the landlord was never entitled to the payment. Instead, the tenant will need to show that it is due a rebate.

One of the Supreme Court judges disagreed with the other four.  Lord Briggs thought that the lease was clear. He said the landlord should be able to decide on the amount and the court should not be able to substitute a less landlord favourable system; it went against the natural meaning of the words used in the lease.  He was in a minority. Therefore, his view was overruled by the other judges and the case is now closed with no further right of appeal.  It may only be the beginning of the story. We wait to see just how much “arguing later” now happens…

For more information on this or other matters, please contact our property disputes team.