Service Charge disputes between tenants and their landlords continue to absorb significant time and costs. A recent high-profile court of appeal decision has served to bring into focus that, in relation to commercial service charges, the understanding and application of the wording of the lease is paramount.
The Court of Appeal judgment (2020) in Sara and Hossein Asset Holdings Limited v Blacks Outdoor Retail Limited involved the letting of a commercial unit. The court decided that the terms of the lease prevented Blacks from defending a claim to unpaid service charges on grounds relating to the quality and cost of the services provided.
Under the service charge provisions in the lease the landlord was required to calculate each year the total cost of the services and expenses. Once “such total costs and the sum payable by the tenant shall have been ascertained” the landlord would give the tenant “a certificate as to the amount of the total cost and the sum payable by the tenant and in the absence of manifest or mathematical error or fraud such certificate shall be conclusive”.
By contrast, in relation to residential service charges the Landlord and Tenant Act 1985 allows the tenant of a dwelling (as defined in section 38 of the 1985 Act) to apply to the First-tier Tribunal (FTT) for a decision on their liability to pay the service charge not withstanding any provision in the lease that might prevent the tenant making the application.
Property Managers of residential dwellings should be aware that the Landlord and Tenant Act 1985 entitles tenants to request a summary of the landlord’s relevant costs.
With the above in mind, property managers of commercial units would be advised to work in partnership with the landlord and tenants of the buildings under their management in order to ensure there is full understanding of the service charge provisions set out in the lease.
An independent accountant’s review provides assurance that the Landlord’s service charge certificate is free from manifest or mathematical errors, thereby reducing the scope for disputes.
Find out more about M+A Partners Property Management Accounting Services here, or by downloading the factsheet below.