06 December, 2021
In the 2021 case of Criterion Buildings Ltd v McKinsey and Company Inc (UK) and another, the High Court had to determine whether landlords can decide how a service charge is proportioned across their commercial tenants.
McKinsey ('the Tenant') was one of the commercial tenants who occupied the Criterion Building leased by Criterion Buildings Ltd ('the Landlord'). The Tenant's lease contained a requirement to pay a "fair proportion to be determined from time to time by the landlord" for the property's service charge, which in the Tenant's case, the Landlord determined to be 54.42% of the total service charge. The Tenant argued that this was too much to be considered a fair proportion and sought in the region of 46.74% (the amounts were significant enough to argue over!). The crux of the case was whether the decision should be a subjective one by the Landlord or whether there should be a reference to objective considerations - and whether the courts had the authority to overturn what the Landlord deemed to be a "fair proportion" of the service charge.
The High Court ruled in favour of the Landlord, stating that it was not the role of the courts to determine what proportion of the service charge should be payable. Rather, the court merely has to ensure that the terms of the lease have been followed, and this was deemed to be the case as it was clearly provided for the fair proportion to be determined by the Landlord and that so long as the Landlord's decision was rational (which the court accepted it was because the Landlord had no financial interest in the division of the service charge), the standard was a subjective one.
For more information contact Helen Marsh in our Commercial Property department via email or phone on 0333 207 4236. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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