Read the Contract!

English Law can be a tough beast. Some European jurisdictions have an obligation on parties to act in “good faith”. English law has a longstanding rule “caveat emptor” – until 1998 when the Civil Procedure Rules banned the use of Latin – so let’s call it “Let the Buyer beware”. If you sign a contract you are bound by the terms, even if you haven’t read them. Where judges think that innocent people have been exploited they will strive to find a way to release them, but that isn’t always possible.

The Supreme Court has dismissed (by a majority of 4:1) the tenants’ appeal on the interpretation of a service charge clause in the tenants’ 99 year leases of chalets in a holiday park. The Court held that the natural meaning of the clause requiring the tenants to pay the service charge to the landlord was clear. The reasonable reader of the clause would understand that:

  • The first part of the clause required the tenants to pay an annual charge to reimburse the landlord for providing the services.
  • The second part of the clause identified how that service charge was to be calculated and that was a fixed sum which increased at a compound rate of 10% per annum.

The fact that this meant that by 2072 each tenant would be paying a service charge of over £550,000 per annum did not justify departing from the natural meaning of the clause. Therefore the court could not apply the power it has where a clause is ambiguous to apply a meaning that it thinks accords with business sense.

Commercial common sense is not a relevant consideration where the natural meaning of the language is clear, even if this results in commercially detrimental consequences. The court will not step in to save a party from a bad bargain.

Arnold v Britton and others [2015] UKSC 36