Service Charge Certification: Conclusive Yet Uncertain

• Law Firm: Birketts
• Subject Matter: Real Estate and Construction, Real Estate, Landlord & Tenant - Leases
• Author: Ian Crowe and Charlotte Wormstone
• Published date: 09 February 2023

The Supreme Court handed down its judgment in Sara & Hossein Asset Holdings Limited v Blacks Outdoor Retail Limited [2023] UKSC 2 on 18 January 2023. However, it provides both clarity and uncertainty for landlords and tenants with respect to commercial service charges.

Sara & Hossein Ltd ("S&H"), the landlord, and Blacks Outdoor Retail Limited ("Blacks"), the tenant, argued whether the certificate issued by S&H, requesting the balance of payment owed by Blacks for the outstanding service charges was conclusive. The dispute concerned '408,000 in service charges levied during 2017-18 and 2018-19 - substantially more than the '55,000 Blacks was charged for the service charge during year 2016-17.

Following non-payment by Blacks of the balancing sum, S&H issued proceedings claiming the outstanding service charge. Blacks served a defence and counterclaim and averred that the sums certified and demanded were not properly due on the basis that certain works either did not, by their nature, fall within the scope of S&H's repair covenant or, if they did, were unnecessary at the time of their commission. At first instance, Blacks succeeded which was subsequently upheld following an appeal by S&H to the High Court. However, following a further appeal by S&H to the Court of Appeal, the previous decisions were overturned. This in turn led to Blacks appealing to the Supreme Court, with the Supreme Court deciding to uphold the Court of Appeal's decision.

The Supreme Court found that both parties' cases had uncommercial consequences.

It made a finding that S&H's position that Blacks should effectively "pay now, argue never" did not fit with the wider context of the lease. The lease provided for (1) a dispute resolution mechanism, whereby if a dispute arose between the parties as to Blacks' service charge contribution, it was to be resolved by an expert determination; and (2) lengthy inspection...