The pesky small print

A recent landmark ruling in Arnold v Britton & Ors (2015) has confirmed the old cliché – always read the small print before you sign.

This case confirmed that commercial contracts entered into freely between parties cannot be retrospectively changed to reflect commercial common sense, no matter how absurd or injurious their impact. (Cue sigh of relief!).  I will come to the facts of the case in a moment and, I suspect, they will seem harsh, perhaps even unjustifiable, but first consider the context.

Freedom of contract principles have always remained sacrosanct because intelligent commercial parties are considered to have the benefit of a greater level of acumen and indeed exposure to professional advice than consumers or private individuals.  Although this is not always the case, if this position was eroded, certainty would be lost from carefully constructed commercial contracts.  That would leave us in a position analogous to the coach and horses driven through certainty with regard to residential property and ownership shares of co-habiting partners - as in the cases of Stack v Dowden (2007) and Jones v Kernott (2011).

The facts of the Arnold v Britton case relate to chalets in a holiday park in South Wales.  Each of the 91 modest chalets is let for a period of 99 years from 1974 on very similar terms.  However, there is one conspicuous difference: service charges are payable by each tenant for the landlord’s maintenance of common parts, yet 66 chalets have their service charge reviewed every 3 years, while the remaining 25 have their service charge reviewed annually.  

I hope I don’t lose too many readers at this point, but the detail is of fundamental importance.  The service charge provision is typically as follows:

“To pay the lessor without any deduction in addition to the said rent, a proportionate part of the expenses and outgoings incurred by the lessor in the repair maintenance renewal and provision of services hereinafter set out the yearly sum of ninety pounds and value added tax for [the first three years OR the first year] of the term hereby granted, increasing thereafter by ten pounds per hundred for every subsequent [three year period OR year] or part thereof.”

However tedious and even difficult to ascertain the language may be, the consequence is substantially different and severe for those with annual reviews.  An increase of 10% per year would put the service charge for these modest holiday chalets at over £1 million each year by the time they came to an end in 2072!  This case confirmed the tenants could not escape the clutches of this clause. 

Always read the small print!

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