Arnold vs Britton, Why Lease = Legal

Arnold vs Britton If you are considering buying leasehold investment property, either commercially or as a holiday let then this applies to you. This legal case is about the costs involved with leasehold property, in particular, the dangers of not understanding the smallest or small print. It is the case that should encourage anyone purchasing […]

May 1st, 2018

Arnold vs Britton

If you are considering buying leasehold investment property, either commercially or as a holiday let then this applies to you.

This legal case is about the costs involved with leasehold property, in particular, the dangers of not understanding the smallest or small print. It is the case that should encourage anyone purchasing leasehold investment property to take legal advice from someone who understands the sector.

If you are looking to buy leasehold investment property then mention Arnold vs Britton to your lawyer, make sure they know the case.

What Happened

This case revolves around a holiday park in the Gower South Wales. The holiday park sold units on a 99-year lease from December 1974. The issue was around the lessee’s obligation to pay the landlord for the upkeep of the site.

The holiday units were sold on leases which required the lessee to pay £90 per annum towards the upkeep of the site. This amount was to be increased per £10 for each 3 year period thereafter. No great issue? Not quite. From 1977 onwards the units were sold with leases that included the £90 per annum cost which then increased by 10% per annum in each year thereafter. (I am deliberately being succinct, if you want the full ruling then you can obtain it here)

There were other issues with the wording of the leases which complicated things, this is commented on below. For now, let me cut to the point on why the lessees went to the Supreme Court.

If you take the £90 per annum then apply a 10% per annum increase, then take a 1977 start date of the lease. By 2070 the annual management charge is £578,588 per annum!

Think your holiday let is still saleable? Want to be in possession of the leasehold property? Probably not…

The Supreme Court Judgement

The case surrounded what was reasonable and about other wording within the leases. It was, as many legal firms called it, a case of the law vs common sense.

The judge in the case, Lord Neuberger gave his judgement and gave some points which clarified his judgement. In effect, the lease was what it was, you agreed to it. His comments were based on 7 principles, these were;

Commercial common sense should not be used to undermine the importance of the language actually used in the contract;
The less clear the drafting of a provision, the more ready the court will be to depart from its natural meaning; but the court should not hunt for problems with the drafting of a contract solely in order to justify departing from its natural meaning;
Commercial common sense must be assessed as at the date the contract was entered into, and should not be invoked retrospectively only once it has become clear that the bargain “has worked out badly, or even disastrously, for one of the parties”;
The court should be slow to reject the natural meaning of a term merely because it appears to have been an imprudent term to have agreed, even at the time of entering the contract;
Surrounding factual circumstances may only be taken into account to the extent that they were known or reasonably available to both parties;
When an unanticipated event occurs, and it is clear what the parties would have intended had they contemplated or intended that event to occur, the court will give effect to that clear intention;
Service charge clauses are not subject to any special rule of interpretation; they need not be construed “restrictively”.

What It Means

If you are buying leasehold property then understand the lease, all of it. Common sense doesn’t override the terms of the lease and should not be used in your interpretation of what the lease means.

The bottom line, the laws around leasehold property will change, notwithstanding that make sure you have taken decent legal advice and know exactly what the lease commits you to.

If you want to know more about this case then look at this article from Hardwicke which explains things in more depth.

By Dave Farmer

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.