Don’t get burnt with service charge disputes

It is a common term in a lease that a certified service charge sum demanded by the landlord is ‘conclusive’. But what should you do if the service charge is disputed? Should the service charge be paid in any event and then disputed, or do tenants risk having to pay the costs and interest incurred by the landlord as they seek to recover the disputed sum?

In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd, the Supreme Court recently answered this question and the outcome will be of interest to landlords, managing agents and tenants alike.

The landlord in the case argued that the certificate must be conclusive, other than in cases of manifest error, mathematical error or fraud. On this basis they suggested that the tenant needed to pay up, with no later right to dispute.

The tenant argued that the certificate was conclusive that the landlord had incurred costs, but not conclusive of the proportion of those costs to be paid by the tenant. The tenant therefore argued that they were entitled to dispute the service charge and then only pay upon determination of the sum.

The Supreme Court disagreed with both parties’ approach and concluded that:

• the certificate for the service charge was conclusive of the amount that the tenant was required to pay
• the tenant could still challenge whether it was liable to pay the sums sought. If that challenge was successful, the landlord would then be required to repay any overpayment.

The tenant was therefore required to pay the sums demanded in accordance with the terms of the lease, then seek to challenge those sums claimed at a later stage.

Service charge disputes are increasingly common as the costs of operating shared buildings or estates has vastly increased in recent years. It is therefore vitally important that parties obtain legal advice before entering leases or tenancies, and when dealing with disputes over service charge.

If you require legal advice in relation to any dispute regarding property, please contact our property litigation specialists.

Our Legal 500 and Chambers-rated litigation & dispute resolution team help private and commercial clients to resolve a wide range of disputes, including those related to property.