The Supreme Court is currently hearing a case relating to the interpretation of contracts. The case relates to chalets in the Gower peninsular in Wales. Under the leases for the chalets, granted for 99 years in 1974, the landlord is entitled to charge a service charge. The service charge clause appears to permits the landlord to increase the charge by 10% per annum to account for inflation (at the time the leases were granted, inflation was at 16%).

The tenants are naturally keen to challenge this clause, the service charge currently amounting to over £3,000 per annum. It is calculated that the service charges will exceed £1m per annum by the time the leases expire in 2073. The High Court decided in 2012 that the tenants appeared to have made a bad bargain but that they were bound by it.

If you would like more information about the interpretation of contracts, please contact Julian Johnstone, head of Druces LLP’s Litigation & Dispute Resolution team.