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 rights of documents for Blacks, which both support the position that there are remedies available to Blacks to challenge their service charge liability.
It also made a finding that Blacks' position of "argue now, pay later" was similarly uncommercial and significantly undermined the purpose of the certification provision in the lease to set out the "sum payable by the tenant", undermining S&H's need for reimbursement of costs and expenses incurred with minimal delay and dispute.
The Supreme Court decided on an alternative interpretation, being "pay now, argue later". It found that the certification was conclusive, meaning Blacks was unable to set-off against the sum claimed by S&H (save for the existence of manifest or mathematical error or fraud) and therefore S&H's cashflow was protected. However, Blacks' ability to challenge the amount paid is reserved which is consistent with the provisions in the lease.
The Supreme Court's ruling provides clarity that a landlord's certificate is deemed conclusive as to the sums payable by a tenant, while being open to a landlord to obtain a summary judgment, notwithstanding the fact that the sums ordered by the Court may not in fact be recoverable under the lease. The judgment, however, keeps the door ajar for tenants, enabling them to later challenge its liability for sums paid pursuant to the certificate. The result creates uncertainty for landlords as to whether a claim will be forthcoming by a tenant, whilst also generating further commercial tension to navigate between landlords and tenants.
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