Service charge

Commercial tenants Attention: imprudent provisions in terms of rental charges!

The Court of Appeal delivered its judgment in Sara and Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020] EWCA Civ 1521. The case, which revolves around a number of service charge provisions in a commercial lease, is another illustration of the Court’s fidelity to well-established principles of contractual interpretation.

Facts

The tenant of the commercial lease in question was Blacks Outdoor Retail Limited, commonly referred to as “Blacks”. The owner was Sara and Hossein Holdings Ltd (“the owner”). A dispute between the parties arose as to the extent of Blacks’ liability for a substantial sum of service charges.

Under clause 2.3(d) of the lease, Blacks was responsible for the service charges “calculated and payable… in accordance with Schedule 6”. Paragraph 2 of Annex 6 stated that “The owner must at each occasion [that service charges fell due] provide the tenant… [with] a certificate showing the amount of the total cost and the sum payable by the tenant and in the absence of manifest or mathematical error or fraud, this certificate will be conclusive”. Parts IIA and IIB of Schedule 6 specified the items that could be included in the owner’s certificate.

The owner filed a claim, claiming that the certificate issued to the blacks was conclusive and that the blacks’ failure to pay the full outstanding fees meant that he had significant arrears. Blacks filed a counterclaim in which she disputed her liability for a number of items on the certificate.

The High Court ruled in favor of Blacks, finding that the Owner’s Certificate was only conclusive as to the cost of services provided by the Owner (or his agents) – the Certificate was however not conclusive as to whether these costs were duly payable under the lease.

The owner appealed.

The call

Overturning the High Court’s decision, the Court of Appeal held that the terms of the lease were clear: the landlord’s certificate was conclusive as to the charges payable by the tenant for service charges. It was not the court’s function to prevent the blacks from making an imprudent bargain. Quoting Lord Neuberger in Arnold vs. Britton [2015] UKSC 36, David Richards LJ reiterated the well-established principle that, when interpreting the terms of a contract, the Court “… identify what the parties agreed, not what the courts think they should have agreed”.

Conclusion

Although it was an unsurprising decision, the Court of Appeal reminded all commercial tenants (and landlords) of the importance of carefully considering each clause of a contract before reaching an agreement. The Court will not rescue reckless tenants who have made bad deals. The Court will rather endeavor to interpret the terms of a contract in accordance with their ordinary meaning and thus to identify the true intentions of the parties at the time of the conclusion of the contract.

If you would like to discuss any issues relating to commercial lease disputes, please contact a member of the Property Dispute Resolution team on 01895 207835 or 01895 207295, or email propertydisputes@ibblaw.co .uk.