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Service Charge Disputes: A Lesson From The Supreme Court

Posted on Thursday 25th June 2015 by Matthew Lewis

Anyone living in a flat or other residential leasehold property will know from experience that service charges are one of the biggest causes of disputes.Matthew Lewis - Solicitor, Coles Miller

Arguments occur when one or more leaseholders query the cost of the maintenance.

As with so many aspects of residential leasehold property, the root of the problem lies in the detailed legal agreements that the leaseholders originally signed.

Leaseholders must be extremely careful when signing such agreements – a tough but valuable lesson meted out recently in the Supreme Court.

The appeal concerned the case of Arnold (Respondent) v Britton and others (Appellants) 2015 UKSC 36.

It centred on a group of park chalet leaseholders who had signed up to a service charge with an annual increase fixed at 10 per cent per year.

Back in the inflation-heavy 1970s, an annual increase of 10 per cent may not have seemed unreasonable.

But today it does – especially when you factor in the effect of compounding.

By the end of this year, the leaseholders will face annual service charges of £2,500 – rising to more than £550,000 per year by the year 2072!

Any leaseholders hoping the Supreme Court would rescue them from this predicament were to be sorely disappointed – the judges ruled by four to one in favour of the respondent.

Supreme Court President Lord Neuberger said: “The duty of the court is only to interpret the bargain between the parties, not to correct it, however ill-advised the contract is and however unfortunate the terms turn out to be.”

The written contract “should be interpreted with reference to the facts as at the date of the agreement when interest was well over 10 per cent.

“The wording of the contract is too clear to allow any other meaning. The words chosen will define the basis of their understanding.”

For the leaseholders it was a hard lesson…learned the hard way.

At Coles Miller, our specialist residential leasehold property solicitors offer the following advice to clients contemplating complex lease agreements:

  • never sign up to a fixed charge
  • always get expert legal advice
  • commercial common sense is vital – “an important factor to take into consideration”(to quote Lord Neuberger again)
  • always read the small print.

Worried about the terms of your lease or your service charges? Extending a lease? Buying the freehold? Changing your managing agents?

For specialist legal advice on all aspects of residential leasehold property, contact Coles Miller Associate Matthew Lewis, 01202 293226.

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