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What is this week's blog about?
In this week’s blog, we look at the service charge case of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd. This has confirmed the concept of ‘pay now, argue later’, following a Supreme Court judgement.
You can read the full decision here.
This is essential knowledge for all candidates and surveyors involved in property management and services charges for commercial property.
What were the facts of this case?
The tenant, Blacks, occupied retail properties in Whitechapel and Liverpool, owned by landlord, Sara & Hossein Asset Holdings. The two leases allowed the landlord to issue an annual service charge certificate confirming the tenant’s fair and reasonable liability, which in 2018 and 2019 combined, totalled over £400,000. The leases further confirmed that this sum was ‘conclusive’ unless there was ‘manifest or mathematical error or fraud”.
Blacks argued that the charges were not fair and reasonable and included items that they were not liable for under the terms of the lease. Therefore, they stated that the certificates confirmed the landlord’s costs but not the sums payable by the tenant.
The landlord argued that the certificates were conclusive, irrespective of Blacks’ view (and as long as there was no error or fraud).
So what did the Supreme Court decide?
The Supreme Court agreed with neither party.
Instead, they held that the tenant must pay the amount stated on the landlord’s service charge certificate. The tenant can then take action to challenge the amount that they are liable for.
This confirms the concept of ‘pay now, argue later’.
In essence, payment of the amount due does not amount to acceptance of the liability, so the tenant reserves their right to challenge this later on. The tenant cannot, however, withhold sums due if they disagree with the amount charged.
This allows prompt payment of charges and efficient operation of the service charge by the landlord, whilst allowing the tenant recourse if they disagree with the amount due.
However, with many tenants already under financial pressure with cash flow issues – is it fair and reasonable to expect them to pay in full and then wait for a refund if a disagreement arises, with no certainty on what the amount might be and when it might be repaid?
Landlords, similarly, are under pressure with costs paid to suppliers and contractors – irrespective of whether they are rightly chargeable under the lease or not.
The Supreme Court has tried to strike a balance between the interests of both parties. However, we suspect that future cases will be brought given the financial pressure on all parties to a lease. It is also important to remember that this case turned on the specific facts and lease wording, so each and every situation needs to be considered on its own merits.
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Stay tuned for our next blog post to help build a better you.
N.b. Nothing in this article constitutes legal, professional or financial advice.