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Understanding the commercial effect of clauses

James Corbett, Ros Cullis, Nik Ireland, and Miri Stickland discuss the drafting of lease agreements and whether the parties' intentions can overrule errors

21 July 2015

The Supreme Court has confirmed in Arnold v Britton and others [2015] UKSC 36 that the court cannot interpret or rewrite a clearly drafted contract just because the literal interpretation of its terms results in the parties being tied to a prejudicial or uncommercial outcome.

Service charges were payable by 25 long leaseholders of chalets at a holiday park in Wales. Each lease was for 99 years from 1974. The leases provided for the tenants to pay a fixed sum of £90 during the first year of their lease as service charge and for each subsequent year a fixed sum representing a 10 per cent increase on the previous year. The effect of this was that the service charge would increase annually at a compound rate of 10 per cent.

The wording of the leases differed very slightly but typically contained a covenant 'to pay to the lessor without any deduction in addition to the said rent a proporti...

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