Commercial common sense and the interpretation of service charge clauses

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Commercial common sense and the interpretation of service charge clauses

19 Jun 2015

A recent appeal dismissal by the Supreme Court highlights the very real need to check over any contracts very carefully before signing on the dotted line.

The Supreme Court has dismissed a tenant’s appeal against the Court of Appeal’s interpretation of a service charge clause in their leases for 99 chalets in a holiday park.

It held that the natural meaning of the clause, requiring the tenants to pay the service charge to the landlord, was clear.  The reasonable reader of the clause would understand that:-

• The first part of the clause required the tenants to pay an annual charge, to reimburse the landlord for providing the services;
• The second part of the clause identified how that service charge was to be calculated and that was a fixed sum, which increased at a compound rate of 10% per annum.

The fact this meant that, by 2072, each tenant would be paying a service a service charge of £550,000 per annum, did not justify departing from the natural meaning of the clause.

This decision demonstrates how the Court should apply the principal of commercial common sense with interpreting written contracts.

This is not a relevant consideration where the natural meaning of the language is clear, even if this resorts in commercially detrimental consequences.  The Court will not step in to save a party from a bad bargain.  It also confirms that there is no special principal of interpretation that service charge clauses are to be construed restrictively.  The usual principals of interpretation apply (Arnold v Britton and others [2015]).

For any concerns that you may have regarding any contract that you have entered into, whether this relates to property or otherwise, please do not hesitate to contact Andrew Weinberg at andrewweinberg@kuits.com, telephone 0161 838 7807 or contact us.

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