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Spiralling service charges

11 June 2015

The Supreme Court has rejected an appeal by 25 chalet tenants against the strict interpretation of the service charge provisions in their 99 year leases.

The leases provide for the tenants to pay a fixed £90 service charge in the first year of the term, to be compounded annually by 10%. Although this means that, for a lease granted in 1980, the tenant will be paying over £550,000 by 2072 for limited services, the court held that this was not a reason to depart from the natural meaning of the clause and that it was not the court’s job to relieve a party from the consequences of his imprudence.

When most of the leases were granted (in the 1970s and 80s), inflation was running at over 10%. However, this case shows the importance of drafting leases to cater as far as possible against unexpected eventualities (in this case, the significant decrease in the inflation rate).

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