Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd

A service-charge certificate is conclusive only on matters the lease objectively intended it to determine. Unless clearly stated otherwise, it does not conclusively determine questions of legal construction, whether works fall within repairing obligations, or whether works were unnecessary. A contractual no-set-off clause may extend to service charges even where the covenant to pay “yearly rent” refers only to base rent, if the clause’s language and commercial context support that construction. Summary judgment is inappropriate where pleaded service-charge challenges have a realistic prospect of success and may require factual or expert evidence.

The claimant landlord sought summary judgment for rent, insurance rent and service charges under successive commercial leases. The defendant tenant disputed aspects of the service charges, alleged breaches of repairing obligations, sought to set off damages, and counterclaimed in relation to a dilapidations payment made when it attempted unsuccessfully to exercise a break clause.

The court considered the conclusiveness of service-charge certificates, the construction of a contractual prohibition on withholding rent and exercising set-off, the propriety of the dilapidations counterclaim, and whether service charges paid on account could be summarily recovered.

1. Summary judgment. The applicable test was whether the defence had a realistic, rather than fanciful, prospect of success. The court must avoid a mini-trial but may decide a short point of law or construction where the necessary material is available.
2. Service-charge certificates. The certificates were conclusive on routine accounting matters, absent manifest or mathematical error or fraud. They were not conclusive on whether particular works fell within the landlord’s repairing obligations, whether works were unnecessary, or whether earlier breaches had increased later repair costs. The latter allegation was properly characterised as a damages claim rather than a challenge to the calculation of the service charge.
3. The allegation that the landlord should have obtained competitive tenders disclosed no defence. The leases imposed no such obligation and none could be implied.
4. No set-off. “Yearly rent” in clause 3.1(a) referred only to the base rent. However, the separate prohibition against withholding “rent” and exercising set-off was not restricted to that base rent. Construed in context and with commercial common sense, it applied to service charges under both leases. The defendant could not set off damages or other sums awarded on its counterclaim against the claimant’s claim.
5. Dilapidations payment. After rejecting the payment as too late to satisfy the break condition, the claimant could not appropriate it to other liabilities because it had been made specifically for the dilapidations liability. The counterclaim was reasonably brought when served, including its claim for declaratory relief, and the defendant was entitled to the attributable costs.
6. Summary judgment was refused on the certified service charges, the on-account charges, and the repairing-obligation counterclaim. Further evidence and a final certificate could affect the outcome. The claimant obtained relief reflecting the contractual bar on set-off, and the remaining matters were left for further directions and costs.