We defended a commercial tenant in an appeal on the conclusiveness of the landlord’s service charge certificate under the lease.
The case concerns two common clauses in commercial leases. The first provides that a landlord’s certificate in relation to service charge is ‘conclusive’. The second is a no set-off provision that the tenant will not withhold rent for any right, claim or counterclaim. The tenant could dispute the proportion they were liable to pay by referring the question to an expert, but not the total payable.
To provide some context, previously, the landlord had sought to recover £55,000 service charge for one year. The following year, once the landlord was made aware that the tenant was vacating the property, the landlord sought to recover over £400,000. Under the lease, the certificate produced by the landlord was ‘conclusive’ except in cases of manifest or mathematical error or fraud.
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Gateley advised the tenant on challenging the conclusiveness of the certificate.
The Deputy Master decided in favour of the tenant and found that the certificate was not conclusive in the manner argued by the landlord. The certificate was not conclusive on whether the works properly fell within the scope of the service charge.
On appeal, in the High Court the landlord relied on case law that shows there is no public policy that prevents a question of law being referred to an expert.
The landlord also argued the tenant could not set-off the disputed sum against the total service charge being sought.
Gateley assisted the tenant with their arguments for the appeal and advised on the likelihood of success.
The High Court dismissed the appeal and decided in favour of the tenant. The certification provision meant the certificate was conclusive on the amount of the total cost payable, but not conclusive on the question of whether that cost should be paid in the first place.
The Court distinguished provisions that refer issues of law to experts pointing out that if the landlord, in this case, was correct, that would make him the ‘judge in his own cause’.
Further, whilst the no set-off provision covers service charge, and therefore the tenant cannot set-off service charge that is ‘due’, if the liability to pay the service charge is disputed, then it needs to be proven that the service charge is in fact ‘due’.
The landlord has since appealed to the Court of Appeal and the judgement is expected to be handed down imminently.