Short-term leases and service charge recovery

A rather disturbing recent decision is the case of Scottish Mutual Assurance v. Jardine. The case concerned a short-term commercial lease which provided for the repair of the roof by the landlord with the ability to recover any costs incurred from the tenant through the service charge. Extensive repairs were carried out towards the end of the lease.

The tenant argued that the expenditure was not reasonably and properly incurred bearing in mind that the landlord could have proceeded with a short-term solution of repairing the roof rather than a long-term solution of extensive roofing works. It was the Court’s view that the landlord was influenced in favor of the latter course by the fact that the lease was coming to an end and a new tenant had been found for the premises who was not prepared to contribute towards the cost of repairing the roof.

Although the decision is a first-instance decision, its implications are of concern for landlords of multi-let buildings where there are either short leases or leases nearing the end of their term and major works are planned. In such cases, notwithstanding that the leases contain full service charge provisions, the obligation to act reasonably should be carefully considered in apportioning the costs between the tenants of the building.