Outdoor Retail Ltd (2019)

Summary

In this case the court was asked to construe two provisions that are extremely common in commercial leases; a “conclusive certification” clause and a “no set-off” clause. The question for the court was: could the landlord obtain summary judgment for service charge arrears against its tenant in reliance on the two clauses? The court’s reasoning is of interest to both real property practitioners and commercial litigators generally.

Facts

Sara was the landlord and Blacks the tenant of retail premises in Liverpool under two successive leases. A dispute arose over the amount of service charge payable. Sara’s case was that Blacks had fallen into substantial arrears, while Blacks disputed various items claimed and advanced a set-off and counterclaim.

The leases contained identical service charge provisions. Blacks was required to pay sums quarterly on account in accordance with written notifications given by Sara. Following the end of each service charge year, Sara was required to furnish a certificate to Blacks of Blacks’ total liability for the year; the parties were then required to make a balancing payment either way if necessary. The leases provided that “in the absence of manifest or mathematical error or fraud” the certificate furnished by Sara was “conclusive”. In addition, both leases required Blacks not to exercise “any right or claim to withhold rent or … to legal or equitable set-off or counterclaim”.

Sara claimed the arrears from Blacks and applied for summary judgment, relying on the “conclusive certification” and “no set-off” clauses. Its case was that Blacks was liable to pay both the certified sums and the uncertified payments on account without set-off or counterclaim. Blacks contended that the “no set-off” clause only applied to claims for base rent, not to service charge. Blacks also argued that the “conclusive certification” clause did not prevent it from challenging the items of service charge claimed or from raising a set-off and counterclaim.

Held

The Deputy Master held that the real question was on what matters the parties had intended the service charge certificate to be “conclusive”. He considered it plain that it was intended to be conclusive on “routine accounting matters”, but not on such questions as whether the works for which payment was claimed fell within Sara’s repairing obligations, or whether costs had been increased by any past failures to maintain the premises. Thus the certificates were not conclusive on the issues raised by Blacks, and Sara was not entitled to an immediate money judgment, either on the certified sums or on the arrears of payments on account.

However, the Deputy Master also held that the term “rent” in the “no set-off” clause did include service charge; thus Blacks would not be able to set off its counterclaim against any money judgment for service charge arrears that Sara ultimately obtained. Sara was entitled to declarations to reflect these conclusions.

Note

After the handing down of judgment, the Deputy Master gave Sara permission to appeal and ordered Blacks to pay roughly 37% of Sara’s claim into court. The appeal is to be heard in May 2020. Further discussion of the case can be found in Woodfall, Landlord and Tenant, paras. 7.115 and 7.180.