Tenant Victory Over Service Charges

Disputes between landlords and tenants over what is and what is not proper to include in the service charges paid by the tenants are commonplace. As in all instances, the wording of the tenancy agreement is crucial, as a recent case illustrates.

It involved leading high street retailer Boots and the charges made by the landlord of Manchester’s Trafford Centre.

The landlord had laid on various entertainments and attractions in the Centre and sought to recoup the cost of these from its tenants. In addition, the landlord provided a ‘Sky Wall’, which gave information about the Centre and on which the tenants could advertise directly for a fee. The advertising revenue from the Sky Wall was set against the service charge levied on the tenants generally.

Boots argued that these expenses constituted ‘promotion’. This was significant because under the service charge agreement, half of the expense of promotion was to be borne by the landlord and the charge for promotion was also limited to 10 per cent of the total service charge.

The definition of promotion included the phrase ‘…advertising and other forms of promotion…intended to bring additional custom to the Centre…’. The court ruled that this meant that promotion had to be intended to be a form of promotion for the Centre and in addition had to be intended to bring additional custom to it. Merely being a benefit or service to the Centre was not enough to qualify.

In the court’s view, the attractions were not a promotion of the Centre and therefore their entire cost was properly part of the service charge to tenants. The Sky Wall, however, was in part a form of promotion that was intended to bring additional business to the Centre. So, to that extent, its use constituted promotion and the cost was in part to be borne by the landlord.