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Rainy Sky indoors? Arnold v. Britton and ors [2015] UKSC 36

An estate contained 91 chalets let on 99 year terms. The Appellants were the tenants under 25 of these leases. The Respondent was the landlord.

In generic form, clause 3(2) of the leases required each Appellant:

“To pay to the Lessor without any deduction in addition to the said rent a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services hereinafter set out the yearly sum of Ninety Pounds and value added tax (if any) for the first year of the term hereby granted increasing thereafter by Ten Pounds per Hundred for every subsequent year or part thereof.”

The Respondent construed this as providing for an initial service charge of £90, thereafter increasing at a compound rate of 10% every year.

The Appellants argued that this construction resulted in extreme annual increases. They argued that cl. 3(2) instead required the tenant to pay a fair proportion of the landlord’s costs subject to a maximum, being £90 in the first year, thereafter increasing annually by 10% on a compound basis.

The appeal was dismissed. Lord Neuberger (leading) emphasised seven factors for the court to consider when interpreting written contracts:

  1. ‘Commercial common sense’ should not be invoked to undervalue the importance of the provision’s language [17];
  2. The less clear the language is, the more readily the court can depart from its natural meaning [18];
  3. The application of natural language leading to disaster for one party is no reason to depart from that language [19];
  4. The court should avoid re-writing a term to assist an unwise party or penalise an astute one [20];
  5. The court can only consider facts extant when the contract was made, and known or reasonably available to both parties at that time [21];
  6. Events may occur which, the language suggests, were plainly not contemplated by the parties. However, if it is clear what the parties would have intended, the court will give effect to that intention [22];
  7. Service charges are not subject to any special rule of interpretation [23].

Lord Neuberger found that the reasonable reader of cl. 3(2) would see its first half as descriptive of the covenant’s purpose, and its second half as a quantification mechanism [24 – 27]. That this mechanism might have alarming consequences for the Appellants did not justify departure from the clause’s natural meaning [30 – 32].

Rahul Varma / 1st Jul 2015


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