This was an appeal to the Supreme Court of a 2013 hearing. The case concerned a number of chalets in a leisure park, each of which was subject to a 99 year lease from 25/12/1974. In issue was the interpretation of a clause requiring the lessees to pay the landlord a sum for the upkeep of the site. There were 5 similar variants of the clause in different leases, the earliest of which read:
"3(2) To pay to the lessors without any deduction in addition to the said rent a proportionate part of the expenses and outgoings incurred by the lessors in the repair maintenance renewal and the provision of services hereafter set out the yearly sum of £90 and VAT (if any) for the first three years of the term hereby granted increasing thereafter by ten pounds per hundred for every subsequent three year period of part thereof."
The key issue was whether the clauses provided for annual compounded increases, at the rate of 10 per cent, as the landlord contended, or whether the figure given in the clauses operated as a cap up to which the landlord could recover the actual expenditure on the provision of services. The tenants' case was that the effect of compounding, already resulting in over £3,000 charges for the services, would by the final year of the lease exceed £1 million. The tenants argued that this was uncommercial and so required the clause to be regarded and read as a cap.
The leading judgment of Lord Neuberger stated that the fact that an arrangement has worked out badly or even disastrously for a party is not a reason for departing from the natural meaning of the language. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience showed that it was by no means unknown for people to enter into arrangements which were ill-advised, and it was not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Whilst reliance must be placed on commercial common sense, this should not undervalue the importance of the language in the provision.
A pdf of the judgment can be found here