UK Supreme Court backs ‘pay now, argue later’ regime in property service charge dispute

UK Supreme Court backs ‘pay now, argue later’ regime in property service charge dispute

January 2023 saw the Supreme Court handing down judgment in Sara & Hossein Asset Holdings Limited v Blacks Limited, a service charge dispute which had been going through the courts for over three years.

Blacks Outdoor Retail Ltd (“Blacks”) rented commercial retail premises from Sara & Hossein Asset Holdings Ltd (“S&H”) under successive leases dated 2013 and 2018 (the “Leases”).

The Leases stated that S&H as landlord should provide a service charge certificate (“SCC”) each year setting out the service charge payable by Blacks as tenant and that the SCC was to be “conclusive” in the absence of “manifest or mathematical error or fraud”.

Blacks argued that the service charge rise was excessive (eight times higher than the previous year) and refused to make any payment until the issue had been resolved.

S&H sued Blacks for the outstanding service charge, and the case centred upon whether the tenant had the right to challenge a service charge assessment where the SCC was deemed to be “conclusive” of the amount payable by the tenant.

The Supreme Court held that neither party’s interpretation of the SCC was correct. It decided that the right approach was one of ‘pay now, argue later’, holding that:

• The SCC was conclusive as the cost of providing the services.
• The SCC was not conclusive as to the elements that the landlord was entitled to include within the service charge.
• The tenant was required to pay in accordance with the SCC until such time as it were established that any adjustment was required.

It was considered important that the landlord did not have to incur expenditure without knowing that it was going to be recoverable where properly included in the SCC.

This case is another illustration of the need for landlords and tenants to have a clear understanding of all aspects of their agreements, as courts have consistently indicated that they will not intervene to fix a bad commercial deal.

We would recommend that tenants resist service charge provisions that make a landlord’s certificate conclusive, so as not to be left without a remedy if you don’t agree with the landlord’s assessment.