The courts often employ the concept of commercial common sense in interpreting ambiguous or poorly drafted contracts – but that does not mean that they will relieve the unwise of the consequences of their bad bargains.
That was the unfortunate outcome for the tenants of 25 holiday bungalows who signed up to a clause in their 99-year leases which enabled their landlord to raise their service charges by 10% annually on a compound basis.
Although the service charges had started off at just £90 a year in 1974, the increases, if implemented in full, would see them rise to more than £550,000 per year by the time the leases expire.
The tenants failed to convince the Court of Appeal that the relevant clause should be interpreted in a manner which allowed the landlord only to recover the reasonable cost of the services provided. In dismissing their appeal against that ruling, the Supreme Court refused to 'go behind' the clause's clear wording.
The Court noted that the concept of commercial common sense could be invoked solely as an aid to ascertaining the parties' intentions at the date of the contract. When the leases were signed, inflation was running at 10% or more and the clause could be viewed as a 'gamble on inflation' by both parties. The language of the clause was unambiguous and it was no part of the Court's role to relieve a contracting party from the consequences of imprudence or bad advice.
If you are entering into any long-term contract of significance, give us a call before you sign on the dotted line.