Service Charge Clauses - the Words Mean What They Say
The Supreme Court handed down a landmark decision last week on the interpretation of service charge clauses.
The case concerned the annual service charge payable under a long lease of a chalet on a leisure park. The lease began in 1971 and runs for 99 years. The relevant clause stated that the lessee had to pay “a proportionate part” of the costs of providing services on the park but this was expressed to be £90 in the first year rising by 10% in each year thereafter.
The issue for the court was whether the clause meant that the lessee had to pay a fixed service charge of £90 with yearly increases of 10% or whether the lessee just had to pay a proportionate part of the cost of providing the services up to a maximum of £90 in the first year and with that maximum figure rising by 10% each year thereafter.
The Supreme Court ruled that the lessee’s obligation was to pay £90 in the first year and increases of 10% each year thereafter. It did not matter that adopting this reasoning would mean that the service charge would be £550,000 by 1972. The words had to be given their natural meaning and the words were clear.
Again the message from the courts is clear. Where clauses in leases are poorly written, there is room for argument on the meaning however express wording in leases will be strictly enforced regardless of the outcome.
As the Supreme Court put it – “commercial common sense was not to undercut the importance of the actual words used.”