Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd
| Jurisdiction | England & Wales |
| Judge | Master Bartlett |
| Judgment Date | 09 December 2019 |
| Neutral Citation | [2019] EWHC 3414 (Ch) |
| Date | 09 December 2019 |
| Docket Number | Claim No: PT-2019-000307 |
| Court | Chancery Division |
[2019] EWHC 3414 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS AND PROBATE LIST
CHANCERY DIVISION
Rolls Building
Royal Courts of Justice
Fetter Lane London EC4A 1NL
Deputy Master Bartlett
Claim No: PT-2019-000307
Mr. Richard Fowler (instructed by Pinsent Masons LLP) for the Claimant
Ms. Morayo Fagborun Bennett (instructed by Gateley Plc) for the Defendant
Hearing date: 20 th August 2019
Approved Judgment
I direct that pursuant to CPR PD 39A Para. 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
In this claim I have to determine an application made by the Claimant by application notice dated 28 th May 2019 for summary judgment on the whole of the claim on the ground that the Defendant has no real prospect of defending it or of succeeding on its counterclaim. The Claimant is the owner of substantial commercial premises at Chicago Buildings, Whitechapel and Stanley Street, Liverpool. The Defendant was until 15 th May 2019 the tenant of a large part of those premises, most recently under a lease dated 23 rd April 2018 (“the 2018 lease”). The claim as issued was for rent, insurance rent and service charges alleged to be due totalling £413,695.28 together with interest on that sum and costs.
The primary facts so far as relevant to the issues before me are fairly simple but they give rise to significant questions of law and construction. I received very helpful skeleton arguments and oral submissions from both counsel.
Factual background
By a lease dated 12 th December 2005 the Claimant's predecessors in title let the premises in question to The Outdoor Group Limited trading as Blacks (“the 2005 lease”). The premises were to be used for the retail sale of outdoor, sports and leisure clothing and ancillary purposes, “Blacks” being of course a well-known name in that field. From about 2009 onwards The Outdoor Group appears to have been in financial difficulties. In 2010 the then landlord however granted it a new lease (“the 2010 lease”). In 2012 The Outdoor Group went into administration. At some point shortly thereafter the lease was acquired by the present Defendant, presumably as part of a purchase of assets of that group from the administrators. The Defendant is part of a group of companies, its ultimate parent company being JD Sports Fashion Plc.
On 13 th May 2013 the previous landlord granted the Defendant a new lease of the premises (“the 2013 lease”). That lease was for a term of ten years but contained a right for the tenant to determine it after five years. In about December 2016 the Claimant acquired the reversion to that lease. The Defendant exercised its right to determine the lease in 2018 but requested the Claimant to allow it to continue in occupation of the premises for a further short period. That led to the grant of the 2018 lease, which as I have stated ran until 23 rd May 2019. That lease also contained a break clause. The Defendant attempted to exercise that break clause but failed to comply with the preconditions for doing so. The lease therefore continued until its expiry by effluxion of time.
Terms of the leases
The 2018 lease provides that it is granted on the same terms as the 2013 lease as varied therein but excluding certain provisions of that lease, in particular the yearly rent and turnover rent reserved by that lease. It provides for what is described as “the Main Rent” of £40,000 per annum payable quarterly in advance. Clause 3.5 provides:
“Starting on the Term Start Date the Tenant must pay the Continuing Rents as rent at the same time and in the same manner as they were payable under the Existing Lease credit being given for service charge and insurance rent paid under the Existing Lease for the period from and including the Term Start Date.”
The Continuing Rents are defined as rent for the insurance of the premises under Clause 3.3 of the 2013 lease, service charge under Clause 2.3(d) and Schedule 6 of that lease, interest under Clause 3.1(b) and all other sums except the yearly and turnover rents reserved as rent under the 2013 lease.
The only other provision of the 2018 lease to which I need to refer at this stage is Clause 9. This provides that on the expiry of the term howsoever determined the tenant will pay a sum of £200,000 in full and final settlement of all its obligations in respect of dilapidations under both the 2013 and 2018 leases. If the tenant exercised its right to determine the 2018 lease early, it was obliged to make that payment on or before the break date.
These provisions clearly direct one back to the 2013 lease for a full statement of the tenant's obligations as regards the various types of payment due under the 2018 lease. The 2013 lease provides for payment by the tenant of a peppercorn rent for the first quarter and thereafter a base rent and a turnover rent. The base rent is £100,000 per annum subject to review after five years. The turnover rent is a sum to be calculated and paid annually in accordance with detailed provisions set out in a schedule. The lease further provides for payment of service charges in accordance with Schedule 6 and as additional rent a fair and proper proportion of the landlord's expenses in insuring the property of which the demised premises form part.
Central to this application is Clause 3.1(a) of the 2013 lease by which the tenant covenants:
“To pay the yearly rent reserved by this lease at the times and in the manner reserved under Clause 2.3 [which sets out the various sums payable as I have explained in Para. 6 above] and not to exercise or seek to exercise any right or claim to withhold rent or any right or claim to legal or equitable set-off or counterclaim (save as required by law)”.
Also of importance are the provisions of Schedule 6 as to the service charges. This provides for a calculation of the total reasonable and proper cost to the landlord in each calendar year of a list of services and expenses and that “the further rent payable by the Tenant” shall be a fair and reasonable proportion of that cost. That proportion is to be calculated in accordance with the proportion which the net internal area of the demised premises bears to the net internal area of all the let areas of the property of which it forms part. Para. 3 of the Schedule provides:
“The Landlord shall on each occasion furnish to the Tenant as soon as practicable after such total cost and the sum payable by the Tenant shall have been ascertained a certificate as to the amount of the total cost and the sum payable by the Tenant and in the absence of manifest or mathematical error or fraud such certificate shall be conclusive”.
The Schedule provides for payments to be made by the tenant quarterly on account and for a balancing payment to be made annually as appropriate after the certificate has been issued.
The claim
Subsequent to the issue of this claim it came to light that the Defendant had made a small further payment, reducing the total sum claimed to £406,856.92. That payment had the effect that all rent and insurance rent under both the 2013 and 2018 leases has now been paid, the whole of the outstanding balance being in respect of service charges. Those service charges were the subject of certificates from the landlord's surveyor pursuant to those leases for the period up to 30 th September 2018 which were in evidence before me. Subsequent to that date the tenant was invoiced for two further quarterly payments on account prior to the expiry of the 2018 lease totalling just over £60,000. Clearly a certificate will need to be issued in respect of that period and any balancing adjustment made to that liability. However as Mr. Fowler submitted that does not affect the Defendant's present liability for those sums and they are included in the claim. Although the Defence makes no admission there is no evidence of any mathematical error in the figures and Ms. Bennett did not submit that there is any such problem.
The Claimant's case on this application rests essentially on two propositions. First, as provided by the 2013 and 2018 leases the certificates issued by the landlord's surveyor are conclusive as to the correctness and recoverability of the service charges. Secondly, if the Defendant has any counterclaim that claim cannot be set-off against the Claimant's claim by virtue of Clause 3.1(a) of the 2013 lease.
The defence and counterclaim
In view of the arguments before me it is necessary to look with some care at the manner in which the Defendant's case is pleaded. The Defence puts in issue as a matter of law and/or construction of the leases the two points which I have identified in Paragraph 9 above. It sets out a number of what are described as challenges to the service charges:
(a) Some of the works charged for were unnecessary;
(b) The works were not the subject of competitive tender;
(c) The cost of the work was increased by past failures on the part of the Claimant to keep the premises in repair;
(d) Some of the works were not works of repair within the meaning of the relevant repairing covenants.
The Defence then sets out what are described as particulars of breach of covenant in respect of which the Defendant is entitled to exercise a right of set-off against the Claimant's claim:
(a) Failure to progress the works with reasonable speed;
(b) Failure to remove scaffolding promptly when the works were completed;
(c) Failure to undertake the works in an economical manner and carrying out unnecessary works;
(d) Failure to obtain competitive tenders for the works;
(e) Failure to keep the property in repair historically, leading to increased repair costs.
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Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd
...amount of costs incurred by the landlord but not as to the tenant's service charge liability. 5 Deputy Master Bartlett (“the master”) [2019] EWHC 3414 (Ch) upheld Blacks' case as to the proper interpretation of the certification clause and his decision was upheld on appeal by Kelyn Bacon Q......