The terms of some commercial leases are more onerous than others and that makes it vital for tenants to seek professional advice before signing them. That was certainly so in a case concerning a lease which, in effect, appointed the landlord sole arbiter of the amount of service charges payable by a retail tenant.
The tenant objected after receiving a service charge demand for over £400,000, a much larger sum than the landlord had sought in the previous year. It argued that some works carried out by the landlord were unnecessary or were not repair works within the meaning of the lease. The cost of works was also said to have been increased by the landlord’s past failures to keep the premises in good repair.
The landlord, however, pointed to a clause in the lease which stated that certificates it raised in respect of the total cost of services provided, and the contribution to that cost payable by the tenant, were to be treated as conclusive, save in the event of manifest or mathematical error or fraud. In reliance on that clause, the landlord sought summary judgment in the full amount of the demand.
The landlord’s application was rejected by a judge on the basis that the relevant certificate was conclusive as to the cost incurred in providing the services but not as to whether those services fell within the scope of services for which the landlord was entitled to charge the tenant. The landlord failed in an initial challenge to that outcome but appealed further to the Court of Appeal.
Upholding the landlord’s challenge and granting summary judgment, the Court found that a natural reading of the crucial clause favoured the landlord’s interpretation of its meaning. The landlord’s certificate on which the demand was founded was therefore binding both as to the elements going into the total cost of services provided and as to the sum payable by the tenant.
The Court acknowledged that that interpretation effectively rendered the landlord judge in its own cause. That was undoubtedly a matter that a tenant would be well advised to consider very carefully before agreeing a lease in those terms. That was particularly so because the lease in question placed no cap on the tenant’s liability for service charges.
The landlord’s interpretation did not, however, lead to a result to which neither party could rationally have agreed. The clause made sense for the landlord in that it avoided the risk of protracted and detailed disputes developing as to whether particular works or services fell within the ambit of the lease.
The tenant’s plea that it was entitled to set off against the demand losses incurred as a result of the landlord’s alleged breaches of the lease would be considered at a further hearing, if not agreed.
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