Arnold v Britton

The leases before the Court began with a service charge of £90. Twenty-one originally applied the 10 per cent increase each year. Four others had started with three-yearly increases but were later varied to yearly increases. The landlord had to maintain roads, paths, fences, drains and shared grounds.

At the beginning, £90 can make a 10 per cent yearly increase look modest. Across a 99-year term, the effect is completely different. The landlord calculated that one lease would rise above £550,000 a year by 2072.

The clause referred to paying a proportionate part of the expenses and outgoings incurred by the landlord. The tenants argued that this language made the escalating figure a limit or contribution towards actual cost rather than a self-standing fixed charge.

That reading had commercial force because the landlord's interpretation could produce charges far beyond the likely cost of the services. The majority nevertheless found that the first part described the purpose of the payment, while the second part set the amount through a fixed formula.

The Court asked what a reasonable person with the background knowledge available when the leases were made would understand the words to mean. Context and commercial consequences mattered, but so did the language the parties chose.

A bad outcome years later was not evidence that the clause meant something else when it was signed. The Court also noted that high inflation in the 1970s and 1980s made a 10 per cent assumption less implausible at the time. The majority therefore enforced the formula despite its future effect.

Price-review wording should be tested across the whole contract, including extensions. Compare the result with realistic revenue, cost and inflation scenarios. A clause that is manageable in year one may dominate the deal in year ten.

Also decide what the increase is meant to achieve. If the goal is cost recovery, use an auditable cost mechanism. If the goal is a predictable fixed uplift, say so and consider a cap. Avoid mixing cost language with a fixed formula unless their relationship is clear.