Tenants lose appeal over ‘potential £1m’ service charges

A group of tenants have lost their appeal relating to a lease agreement which obliges them to pay service charges that increase at a compound rate of 10% a year.

The case involved tenants with long leases of holiday chalets at a leisure park. Their leases, dating back several years, contained a clause saying they agreed to pay £90 plus VAT a year in service charges.

The £90 was just a base figure for the first year of the lease. The clause went on to say that the service charge figure would increase by “10 pounds per hundred in every subsequent year”.

The tenants submitted that the effect of this compound interest was that the service charges had now risen to £3,000 a year, even though very few services were provided. By the last year of the lease, the figure would be more than £1m.

They said this was nonsensical and claimed that the clause should be interpreted as meaning the increase should be capped at 10%, as opposed to being automatically increased by that figure on a compound basis.

The Court of Appeal found in favour of the landlord. It held that the language of the lease was unambiguous and could not be interpreted in the way the tenants suggested.

The court was being asked, under the guise of interpretation, to mend a bad bargain and it could not properly do so.

Please contact Matthew Melling or Hugh Beeley if you would like more information about the issues raised in this article or any aspect of commercial property law.