Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd
There are many clauses that are included in commercial leases as standard. Many, if not all, will exclude all rights of set-off. Essentially this means that tenants are not allowed to deduct any sums they feel they are owed by their landlord from the sums they are obliged to pay e.g. rent. Another further common clause is that each service charge account is conclusive and must be paid by the tenant.
In practice, these clauses are rarely scrutinised. However, in the recent case of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd (2020) the effect and meaning of these clauses was paramount with the case turning on the wording of the lease.
Sara (the landlord), and Blacks (the tenant), fell into dispute over the service charge payable on a commercial premises in Liverpool. Blacks set-off sums against the service charge on the basis that some service charge items were unnecessary and that they did not fall within the landlord’s repairing obligations.
The landlord pointed out that the right of set-off was specifically excluded by the lease. Also, the service charge certificate was conclusive save for “manifest or mathematical error or fraud” which wasn’t alleged by the tenant.
The High Court held that the service charge certificate was intended to be conclusive in relation to “routine accounting matters” rather than a challenge to the items in the service charge and whether they formed part of the repairing obligation. So, the tenant was able to question if particular works fell within the scope of the service charge claimed by the landlord.
In relation to the “no set-off” clause, this did extend to the service charge and the tenant would not be able to set-off against these charges.
The landlord’s first appeal upheld the decision made in the first instance.
The landlord subsequently appealed to the Court of Appeal which reversed the decision. It was considered that the wording of the lease was clear. The landlord was to produce a certificate “as to the amount of the total cost and the sum payable”. Although it may not have prudent for the tenant to agree to these terms, it was not the job of the court to save a party from agreeing to an imprudent term.
It should be noted that Blacks is now in the process of seeking permission to appeal to the Supreme Court.
This case will be welcomed by commercial landlords but highlights the importance of ensuring a lease exhibits maximum clarity. The effect of a service charge certificate will depend on its construction in the lease and care should be taken as each lease will be interpreted on its own terms.
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