Court refuses to re-write lessees bad bargain

The applicants in this appeal were lessees of 99 year leases for ‘modest’ holiday chalets in a leisure park. The respondent was the lessor. There were a number of chalets and a number of different leases.

Notwithstanding some differences in wording between the different leases, they contained a service charge clause by which the service charge payable was the sum of £90 for the first year (or first three years in some leases). This amount would be increased by 10% per annum by way of a compound rate of increase. Given current rates of inflation, this would mean that in the final year of the 99 year long leases, the lessees would be paying service charge of some £1,025,004 for limited services in respect of what were considered to be modest holiday chalets, only used between March and October.

In an attempt to counter this ‘absurd’ result, the lessees sought to argue that a correct interpretation of the service charge clause was subject to a cap of £90 in the first year and thereafter to a cap rising by the rate of 10% per annum.

Despite the Court of Appeal’s initial gut reaction that the lessees’ interpretation ought to be right, it refused to imply such a cap as that concept simply did not appear from the words used in the clause and to do so would involve writing in words that were not there. This would only serve to rewrite the lessees’ bad bargain which is not the court’s function.

There is a difference between contracts which are ambiguous, when the court will seek to achieve the most commercially sensible result; contracts where something has clearly gone wrong with the wording which can be dealt with; and cases such as this, where there is no real ambiguity and instead simply a clause which has proved to have rather an extreme result but one which the lessees could have foreseen upon entering into the lease. This case is a clear example of the court’s refusal to re-write a contract simply because it transpires that one party has obtained a bad bargain.

LJ Davis did however state in his judgment that it was a shame the parties had not reached a sensible compromise on this and hopes that one can yet be achieved. He feared that surrender or forfeiture of the leases would be detrimental to the lessor simply because of the local publicity the case would have generated. No-one would want to take on a lease with such an onerous service charge provision and so it would be sensible for the parties to enter into a fair-minded and negotiated solution with all lessees in the leisure park.