The Supreme Court has handed down judgment in the case of Arnold v Britton – a dispute revolving around the interpretation of a service charge clause in the leases for 25 holiday chalets on a holiday park near Swansea.
The clause in question was written to allow the landlord to increase the service charge on each chalet by a compound rate of 10% every year – effectively meaning that by the last year of their lease each leaseholder could face a charge of over £550,000 per year.
The Court has found in favour of the landlord, stating that although:
“The fact that an arrangement has worked out badly or even disastrously is not a reason for departing from the natural meaning of the language [in the clause]” – in effect, the leaseholders made a bad bargain, and now have to face the consequences.
Lauren Fraser, Associate in the property litigation team at Charles Russell Speechlys, said:
“Whilst the Supreme Court’s decision seems grossly unfair to the leaseholders, and was clearly handed down reluctantly by the Court, it had no alternative but to apply the established legal principles of interpreting contracts to find that the wording of the leases was too clear to reach any other conclusion: the leaseholders made a bad bargain and now have to live with it.
“Whilst there are a number of statutory protections available to leaseholders, the Court determined that these did not apply to the service charge provisions in this case. The Court is restricted to interpreting contracts, not “correcting” them. Any extension of the statutory protection would be down to Parliament.
“Nonetheless, one cannot help but feel sorry for the Oxwich leaseholders who will soon face annual service charges in the tens and hundreds of thousands of pounds – far exceeding the value of their properties.
“Potential leaseholders would be well advised to keep in mind the classic maxim ‘let the buyer beware’ and to carefully check how their service charges are calculated before entering into a new lease, rather than seeking a way out after the deal has been done.”