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Unambiguous wording prevails against commercial common sense

Tenants of 25 chalets at Oxwich Leisure Park in Wales whose 99 year leases were granted between 1974 and 1991 are in dispute with the landlord as to the interpretation of a clause requiring the tenants to pay service charge.

The leases required the tenants to pay an initial annual service charge of £90 which increased at a compound rate of 10% every year. On this basis, for leases granted in 1980, the current annual service charge was £2,500 and by 2072 would reach a staggering £550,000!

The tenants argued that the reference to the 10% increase in the clause should be read as stipulating what the upper limit was to the service charge. They acknowledged that this interpretation would require the court to imply additional wording to the clause. The tenants, having failed in the Court of Appeal, appealed to the Supreme Court. The Supreme Court, by a majority of 4 to 1 upheld the landlord’s interpretation again.

The fact that the consequences of the language used worked out badly – or even disastrously – for a party was not a reason for departing from their natural meaning. It is not the court’s function to relieve a party from the consequences of an imprudent miscalculation or from poor advice.

It was clear that the tenants had struck a very bad bargain by failing to appreciate the compounding effect of the 10% per annum increase. However the nature of the clause was unambiguous and so they were bound by it.