No rescue for chalet leaseholder

The leaseholders at a Swansea park of holiday chalets have lost their bid at the Supreme Court for a cheaper service charge.

Arnold v Britton & Ors [2015] UKSC 36 concerned a dispute over the service charge on holiday chalets, which began at £90 per year and increased at a compound rate—rising by 10% every three years for some chalets and every year for others.

Britton represents 43 people who lease 25 holiday chalets between them at Oxwich Leisure Park near Swansea. Arnold owns the park.

The leases contained five different variations of a service charge clause leases under which the holidaymakers pay Arnold a sum for repair and maintenance of the park.

Arnold’s view of the clause was that the lessees were obliged to pay a fixed yearly sum which rises by 10% each year.

Britton and the other lessees argued that the clause obliged them to pay a proportion of the lessor’s expenses subject to a maximum cap of 10% on any annual increase.

The leaseholders won the case in the County Court but this was overturned on appeal by the High Court and then the Court of Appeal, which unanimously held in favour of the park owner, Arnold’s interpretation. In a judgment handed down this week, the Supreme Court agreed, holding 4–1 (Lord Carnwath dissenting) in favour of Arnold and dismissing the appeal. 

Giving judgment, Lord Neuberger said: “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.” 

Later in his judgment, he said: “A court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.”

Dissenting, Lord Carnwath said he regarded the consequences of the lessor’s interpretation as “so commercially improbable that only the clearest words would justify the court in adopting it.” 

Professor James Driscoll, solicitor and author, says: “People sometimes go to the trouble and the expense of litigation to try to correct something that is not just unfair but one that leads to absurd results.  

“The leaseholders in this appeal face escalating service charges all out of proportion to the costs the landlord has incurred. A literal interpretation as adopted by the Supreme Court will disappoint many, not just the leaseholders involved in this litigation. There is much to be said for the purposive approach taken by Lord Carnwath who found that the service charge provisions should be interpreted as allowing the landlord to recover its costs up to a limit.

“In practical terms, it means that the leaseholders have no redress and face crippling increases in the charges. The court expressed the hope that the parties will reach an amicable agreement but the history of the litigation so far does not bode well for a settlement.”