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30th June 2020

When is a conclusive service charge certificate not conclusive?

In the recent decision of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd, the Court confirmed that a “conclusive” service charge certificate was not in fact conclusive where payments claimed were not in accordance with the landlord’s service charge obligations.
The lease required the tenant to pay a “fair and reasonable proportion” of the service charge for the building. The service charge was payable quarterly, and at the end of the accounting year, the landlord was required to issue the tenant with a certificate confirming the total service charge for which the tenant was liable that year. The lease stated the certificate was deemed to be the conclusive sum owed by the tenant for service charge and could not be set-off against any other liability.

In the case, the tenant failed to make a service charge payment following receipt of a service charge certificate. The landlord issued proceedings against the tenant for the full sum of the service charge detailed in the certificate. The tenant claimed that some of the works carried out by the landlord were unnecessary or were not part of the landlord’s service charge obligations. The Court agreed with the tenant that these works should not have been included within the service charge certificate. The Court decided that the service charge certificate was conclusive of the sums incurred, but the tenant was still entitled to question whether the costs incurred by the landlord fell within the scope of service charge due under the lease, and therefore whether the tenant was required to pay for the works.

The lease included a standard clause preventing set-off and so the tenant was not entitled to withhold a sum for service charge which was properly due. However, the tenant was entitled to withhold the service charge until the dispute surrounding the sum of the service charge was determined.

The Court decided that tenants may therefore, withhold service charge payments where the sum is in dispute, regardless of whether a service charge certificate is stated within the lease to be conclusive when issued.

The decision serves as a warning to landlords about the importance of ensuring that service charge invoices are accurate and relate only to works which fall within the scope of the service charge provisions detailed in the lease.

For advice related to this or any other landlord and tenant issue please contact Ceri Riddell on 01223 532753 or click here to email her.
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