Beware the wording in your lease
By virtue of leases made in 1974, the tenants of chalets in a park in Wales may have to pay one million per year for their service charges.
When a development of leasehold properties is built, they often share common services such as driveways, pipes, cables and common areas such as gardens. Leases are often drafted to ensure that someone has the legal responsibility for maintaining and insuring such areas and the cost of providing these services is paid by the tenants who are obliged under the terms of their lease to pay an annual service charge.
A lease can last for a long time, often over 100 years and the lease must contain provisions for the calculation and payment of the service charge for the entire length of the lease. Such clauses can be difficult to draft and to interpret.
The service charge at Oxwich Leisure Park in Gower was just £90 per year when the leases were set up in 1974. The leases also contained an allowance for annual inflation of 10% at a time when the rate was 16% which means payments could increase to £1,025,004 by the time the leases expire in 2073. The problem was that the leases allowed the landlord to increase the service charge annually and a compound interest formula was used.
The 25 tenants took the landlord to court and tried to argue that the leases should be altered on the basis of common sense. A lease is a contractual agreement between the parties and the UK courts are reluctant to alter the terms of such contracts.
Unfortunately for the tenants, the highest court in England, the Supreme Court held in the landlord's favour.
In his leading judgment, Lord Neuberger said that it was true that the provision had "an alarming consequence" for the tenants on the 25 leases affected. However, he said that this was "not a convincing argument for departing from the natural meaning of the clause".
He went on to say: "Commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language.”
The case is a salutary reminder of the importance of careful consideration of how such clauses should be drafted when a leasehold development is set up. It is also vitally important to ensure that you obtain proper legal advice when purchasing such a property, even if the development was set up many years ago, to ensure that you fully understand the implications of all of the clauses in your lease.
To discuss this or other landlord and tenant related issues contact us.
Internet link: Arnold v Britton & Ors