Commercial Update 87 – ‘Pay Now, Argue Later’, New Guidance on Service Charge Certificates

The UK Supreme Court has released (18 January 2023) its judgment in the case of Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd, with a majority ruling in favour of the landlord, dismissing the tenant’s appeal against the Court of Appeal’s grant of summary judgment.

In a nutshell, the tenant here was responsible for paying the amount stated in the landlord’s service charge certificate in a commercial lease setting out what service charge is owed in the landlord’s view, but can take further action disputing its underlying liability for the service charge payments, so is required to pay immediately, and then challenge disputed elements of the costs.

The case centered on the issue of whether the tenant had the right to challenge a service charge sum where the landlord’s service charge certificate was deemed to be “conclusive” of the sums payable by the tenant. The Supreme Court held that neither party’s proposed interpretation of the certificate to date had been correct and confirmed an alternative interpretation that the certificate was conclusive as to what is required to be paid by the tenant following certification.

However, the judgment struck a balance between landlord and the tenant by confirming that payment of the certified sum does not preclude the tenant from later disputing liability for that payment – this was and is now referred to as the “pay now, argue later” regime.

The Supreme Court’s decision could be seen as an attempt to strike a balance between landlords and tenants by protecting landlords’ cash flow and enabling landlords to pay for services, whilst allowing tenants to take action if necessary.

That said, hard-pressed tenants may not have the funds to mount a challenge and landlords, already faced with ongoing financial pressures, particularly in the retail sector, will not welcome the prospect of rebate claims from tenants over disputed service charge payments.

This case shows that a tenant should still be wary about agreeing a service charge provision which provides that a landlord’s certificate as to the amount of service charge due is conclusive, but it should also provide some comfort to tenants, as even where the service charge provisions provide that the landlord can self-certify the sums payable by the tenant, they may still have chance to “argue later” about whether or not they are liable for those costs. The battle rumbles on…

Regards to all