In the first couple of months of the new year, it is common to hear complaints about the cost of Christmas. Nowhere is this more true than at the Trafford Centre in Manchester, where the tenants have been embroiled in a service charge dispute with the landlord. The dispute arose from the service charge treatment of various items provided by the landlord at the shopping centre. These included entertainments such as a jazz band or string quartet, as well as children's activities, and an installation known as the Sky Wall. Two items: Christmas decorations and a Santa's Grotto, related specifically to the festive season.

The Sky Wall, which was located in the food court, gave shoppers information about the Centre generally and the various activities on offer. It was also used by the Centre's retailers and restaurants to advertise their presence. In the latter case, the retailer concerned paid for the advertising, and income generated in this way was set off against the service charge. When the Sky Wall was not being used for either of these purposes it displayed music videos to entertain customers.

There was no dispute about the landlord's entitlement to include a charge for these matters in the service charge account. However, one of the tenants contended that these matters constituted "Promotion", to which, according to the lease, special rules applied.

"Promotion" was defined as "... advertising and other forms of promotion of the Centre intended to bring additional custom to the Centre which shall be reasonable and proper but excluding any advertising in respect of letting any unlet units". The lease provided that the landlord would bear 50% of the cost of Promotion in any service charge period. In addition, the total cost of Promotion in each service charge period was not to exceed 10% of the total service charge.

The High Court ruled that the definition of "Promotion" in the lease involved a two-stage test. In order to fall within the definition, something had to be a form of promotion of the Centre. If that test was met, the separate and subsequent question had to be asked of whether that form of promotion was intended to bring additional custom to the Centre. It was not enough that something was intended to bring additional custom to the Centre if it was not itself a form of promotion of the Centre.

The court drew a distinction between something which could properly be called a promotion of the Centre on the one hand, and on the other hand something which was of benefit to the Centre; an attraction, a service, a facility or an amenity within the Centre. Applying that distinction, the court found that the entertainments, the Christmas decorations and the Santa's grotto were a facility or an amenity or an attraction, but not a form of promotion of the Centre. In relation to the Sky Wall, the court thought that using the Sky Wall in order to provide information about the Centre would naturally come within the phrase "advertising and other forms of promotion of the Centre", but that in relation to its other uses it was a facility or an amenity or an attraction (but not a form of promotion of the Centre).

The result was that the cost of these items (or, in the case of the Sky Wall, a proportionate part of the cost) could be passed on to the tenants in full via the service charge, rather than shared 50:50 with the landlord.

Things to consider

Service charge disputes will always turn on the wording of the lease in question. Nonetheless, since the activities organised by the landlord in this case are by no means unique to the Trafford Centre, landlords and tenants of shopping centres around the country will be interested in the outcome of this case.

Boots UK Limited v Trafford Centre Ltd.