Paying a premium – beware of service charge clauses

The recent Supreme Court decision of Arnold v Britton highlights the dangers of harsh drafting in service charge clauses.  The Supreme Court upheld a decision that enforced a fixed service charge with annual compounded increases of 10%.  The effect of this 10% compounded increase over the tenants’ 99 year lease was to inflate a £90 service charge to an eye-watering figure of over £1.1 million!

The drafting in Arnold v Britton is a particularly extreme example, but there are several other clauses that tenants should be wary of when entering into leases with service charge provisions, for example:

  • Fixing design defects – where defects in design or construction of a building need repairs, tenants should seek to exclude these costs from the service charge.  The landlord should be left to enforce its contractual remedies against its contractors and professional advisors.
  • Building improvements – tenants, particularly those whose interest in a property is limited to just a few years (or less), should not be expected to fund capital improvements to a property or works that go beyond normal maintenance, repair or replacement.
  • Adding or withdrawing services – the landlord should not have absolute discretion on adding or withdrawing services.  As a minimum there should be a degree of reasonableness and ideally variations to services should only be permitted where the interests of tenants would be better served by the variation.

  • Widely drawn ‘sweeper-up’ clauses – tenants should seek to resist widely drafted clauses.  If such a clause is included tenants should seek to limit additional costs to items which are capable of benefitting them and which are in keeping with principles of good estate management.

Arnold v Britton is a clear warning to tenants of the need for careful scrutiny of service charge provisions and a reminder of the potential hidden costs arising from leases.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.


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