Tag Archives: Service charges

Arnold v Britton: Lord Neuberger abolishes common sense

Lord Neuberger, President of the UK Supreme Court, has issued one of his presidential proclamations – which is what he does when he wishes to change the law from his lofty but unaccountable position. Nominally the case he was considering, Arnold v Britton & Others, was a simple enough matter regarding service charges for a set of chalets on the Gower peninsula: clause 3(2) of the lease said the price for work such as mowing grass, maintaining roads through the site and sewers &c was to be £90 in 1974 rising by 10% a year; how should this be interpreted nearly 40 years on when the annual figure was more than £3,000 per chalet and rising? (Inflation would produced a figure of less than £800 by 2012.)

If the charge were truly to rise by 10% a year the lessor would be making a very substantial surplus over the term of the lease thanks to compounding (Year 2: £90 + £9 = £99; year 3: £99 + £9.90 = £108.90 and so on annually.) As Davis LJ in the Court of Appeal noted:

 “The figures before us are illustrative of the consequences. For a lease on a one year compounded uplift, the annual service charge payable was, for the year end 2012, some £3,060. At the same compounded annual rate of increase, the projected annual sum payable for service charges in the last year of the term stands to be some £1,025,004: this for modest holiday chalets, the use of which is restricted to half of each year.”

That’s a million pounds per chalet. There were 25 involved in the litigation but 91 in total, some with a less onerous system of payment for services. The outcomes would vary depending on when the leases were issued. Nevertheless, if the clause in the lease were allowed to stand, the lessors would have pulled in hundreds of millions in pure profit over the 99 years of the lease. This on a term of the lease which, it is axiomatic, should not be profit-making since it is merely for the lessor to recover expenditure on ongoing maintenance of the common facilities (see Lease – though holiday chalet leases aren’t covered by legislation for homes).  Continue reading

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