Changes

While the judge in the county court had held in favour of the Tenants, the High Court and the Court of Appeal held in favour of the Landlord. The Tenants appealed to the Supreme Court.

By a majority of 4 to 1 (Lord Carnwath dissenting), the Supreme Court dismissed the appeal by the Tenants.

Lord Carnwath was of the view that something had gone wrong in the drafting of Clause 3(2). The first part of Clause 3(2) could not simply be descriptive of the character of the payment to be made. The clause contained two different descriptions of the payable amount: first, a “proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services…”; and second, a “yearly sum” determined by reference to a fixed formula. He continued:

Under the interpretation held by the Court of Appeal, Lord Carnwath continued, the Landlord in 1980 would have been pessimistic about the future of the economy and would have thought it reasonable to assume continuing 10% inflation for the remaining years of these long leases. But such a prediction would have been impossible, even for economists. The differences in service charge with the existing leases would become grotesque over the years. It was inconceivable that potential purchaser would have been willing to accept a prediction of continuing inflation at that level and to take that as the basis for undertaking a contractual obligation lasting for the rest of his life. Therefore, the formula in the second part of Clause 3(2) should be read as a cap. The limit of 10% might be seen as an acceptable compromise between the parties for the immediate future while allowing for a return of inflation to more normal levels in the medium term.