The Supreme Court will give its decision next week on whether service charge provisions, which will see tenants of 25 holiday chalets near Swansea ultimately face a £1m-a-year bill, render their leases defective.
A compound increase in the service charge under the leases has led to them soaring to more than £3,000 a year, while their neighbours pay less than a tenth of that amount. In an appeal in January, the Supreme Court was asked to put a stop to the increase that would see the service charges top £1m by the end of the affected leases.
Lord Neuberger, Lord Sumption, Lord Carnwath, Lord Hughes and Lord Hodge will give their decision on Wednesday 10 June.
They are expected to rule whether, as a matter of interpretation, the leases oblige the lessees to pay a fixed yearly amount, which rises at the rate of 10% per annum irrespective of the cost to the lessor of providing the relevant services; or oblige the lessees to pay a proportionate part of the lessor’s expenses actually incurred each year, subject to a maximum yearly increase of 10%.
Opening the appeal on behalf of the tenants in January, Timothy Morshead QC said that the leases are defective, and that it is the service charge provisions written into them that were the “seeds of destruction”.
He said that even the landlord of the site, Paddy Arnold, had now accepted that and has indicated her willingness to renegotiate.
In 2013, Davis LJ at the Court of Appeal backed a High Court ruling in favour of Arnold, and found that the bargain that the tenants of the 25 chalets had agreed to could not be rewritten.
He said that, because of the compound nature of the increase under their leases – which set an annual 10% increase in service charges from a starting point of £90 in 1974 – the price payable each year had by that point reached £3,060 and will be as high as £1,025,004 by the end of the 99-year term, all “for modest holiday chalets, the use of which is restricted to half of each year”.
Meanwhile, the tenants of the 66 other chalets at Oxwich Leisure Park, Oxwich, Gower, near Swansea, are subject to a compound increase of 10% only every three years. This inflation-beating provision has seen their service charges rise only as high as £282 a year.
The tenants of the 25 chalets subject to spiralling service charges claim that Morgan J’s initial High Court ruling in favour of their lessor was “commercially absurd” and “accords with no kind of sense”.
Arnold v Britton and ors Supreme Court (Lord Neuberger, Lord Sumption, Lord Carnwath, Lord Hughes, Lord Hodge)
