Member Article

Avoiding litigation of Service Charge Provisions

With Watson Burton LLP Law Firm

Lease Service Charge Provisions often end up the subject of dispute between landlord and tenant, as illustrated by the recent case of St Mowden Development (Edmonton) Ltd v Tesco Stores Ltd (2006) EWHC3177(Ch). This case highlighted that in the absence of a statutory code governing service charges relating to commercial premises, the resolution of any disputes will turn on the wording of the relevant service charge provision.

Tesco held their premises under a long lease granted by the Local Authority who had subsequently disposed of its interest. The service charge provisions provided that the annual service was to be ascertained and certified by the Council’s Borough Treasurer. St Mowden argued that the provision should be interpreted sensibly and that therefore certification by their financial director (being their equivalent to the Borough Treasurer) should suffice. The Court accepted Tesco’s argument that the Borough Treasurer was a public officer who owed duties to the public at large, and therefore did not equate to a financial director of a company which might subsequently become the landlord. Accordingly, the certification mechanism had broken down and St Mowden would have to sue to recover its expenditure.

As Tesco removed its own refuse, it also disputed whether St Mowden was entitled to require it to contribute to the cost of removing other tenants’ refuse and whether they could charge a 10% management fee for the cost of providing the services. The Lease set out which services could be included in the service charge and the removal of waste was considered by the Court as being included. As regards the 10% management fee, the parties ultimately agreed that St Mowden could charge a management fee but that the fee was limited to what it actually cost to manage the provision of the services.

As this case demonstrates, it is vital that service charge provisions are clearly and comprehensively drafted if potentially expensive disputes are to be avoided.

If you have any questions on this issue or any other Commercial Property matters, please contact Helen Scott at Watson Burton LLP (email helen.scott@watsonburton.com).

This was posted in Bdaily's Members' News section by Ruth Mitchell .