Lawbite: Conclusive does mean Conclusive!

Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2020] EWCA CIV 1521

The Court of Appeal has overturned the High Court’s earlier decision and upheld the ‘natural meaning’ of a clause which provided that the landlord’s service charge certificate was “conclusive”. Whilst this may produce an undesirable outcome for the tenant, there was no basis for the court to imply wording into the clause simply to save the tenant from an imprudent clause.

The tenant covenanted to pay a "fair and reasonable proportion" of the total service cost. At the end of each year, the landlord produced a service charge certificate showing the amount payable by the tenant, which the lease said was “conclusive” in the absence of manifest or mathematical error or fraud. The lease also prohibited the tenant from claiming any right to set-off or counterclaim.

When service charge sums fell outstanding, the landlord issued proceedings for the arrears and the tenant counterclaimed.  It alleged that some of the works were unnecessary, that some of the costs related to repair works which fell outside of the landlord's repair obligations and that the cost of the work was increased by the landlord’s past failures to keep the premises in good repair.

The High Court held that the certificate was only conclusive (in the absence of manifest error or fraud) as to the amount payable by the tenant but was not conclusive as to whether those costs were properly incurred in the first place, i.e. whether they actually fell within the scope of the service charge payable by the tenant under the lease.

The Court of Appeal disagreed and overturned the High Court’s decision. It held that treating the categorisation of the relevant services and expenses as not being conclusively determined by the landlord's certificate (subject to mathematical or manifest error or fraud) would require express words to that effect or a necessary implication. There were no such express words and it held that there were no grounds to support implying words to that effect.

Key points

• this case serves as a reminder that the court will not save a party from the consequences of an undesirable clause. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed
• all parties should be well advised to read the terms of a lease before agreeing to its terms