Conclusive Certification of Service Charge Not So Conclusive

In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd, the High Court held that a tenant could challenge whether sums were properly due under a service charge despite a lease clause making the landlord’s service charge certificate conclusive, absent manifest or mathematical error or fraud.

Blacks Outdoor Retail Limited (Blacks) was the tenant of commercial premises and had covenanted to pay a “fair and reasonable proportion” of the total service cost incurred by its landlord, Sara & Hossein Asset Holdings Ltd (S&H).

Blacks refused to pay the service charge due under the lease on the basis that the expenses incurred by S&H were not within the landlord’s repair obligations in the lease.

S&H sought to recover outstanding service charge arrears from Blacks, having produced a certificate of the total cost of services and expenses incurred during the year, with the lease stating that such certificate was conclusive as to the service charge due, save in cases of manifest or mathematical error or fraud.

Blacks however argued that such clauses do not prevent tenants challenging the items falling within the service charges claimed.

The High Court found in favour of Blacks. It held that whilst the certificate was conclusive as to the amount of the costs incurred, absent manifest or mathematical error or fraud, it was not conclusive as to the question of whether those costs as a matter of principle fell within the scope of the service charge payable by the tenant under the lease.

While this decision turns on the wording of the lease under consideration, it demonstrates that ‘conclusive’ does not necessarily mean conclusive of all matters and landlords should be careful to ensure the costs that they are seeking to recover actually falls within the service charge provisions in their leases.

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