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Construction of the lease
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Construction of the lease

The starting point in any service charge dispute is the lease. The landlord can only recover charges from the tenant if they are recoverable under the terms of the lease. This page deals with the following points:
  • The general principles.
  • Caretaker's flat - recovery of landlord for notional rent in respect of the flat.
  • Landlord making a profit over and above the re-imbursement of costs.


Sheldon Square Residents Association v St George North London Limited
[2011] UKUT 13 (LC)


This case provides a useful summary of the recent case law on the principles to be applied to the construction of a lease.


Sheldon Square is a mixed development. There are two residential buildings in the development (Block A and Block B), comprising private residential flats and affordable housing flats. In total there are 164 private residential apartments. The leases were described as “complicated documents drafted with a lack of clarity”.

The issue in the case was whether the underlease entitled the headlessee/underlessor to a full indemnity from the underlessees for the estate charge demanded from it under the headlease. Two thirds of the charges (£288,500 and £186,000 in 2003-4 and £172,000 and £170,000 in 2004-5 for Block A and Block B respectively) would not be recoverable if the underlessees’ contention as to the construction of the lease was correct.


The correct principles to be applied to the construction of a lease are discussed at paragraphs 39 - 53 of the decision. In summary:
  • The detailed and syntactical analysis of words in a commercial contract must yield to business commonsense (Antaios Companania Naviera SA v Salen Rederierna AB [1995] AC 191)

  • The more unreasonable the result of a given construction, the readier the court should be to adopt some less obvious meaning (Lancashire CC v Municipal Mutual Insurance Ltd [1997] QB 897)

  • The court must not try to [divine] the purpose of the contract by speculating about the real intention of the parties. It may only be inferred from the language used by the parties, judged against the objective contextual background (Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR 1580)... THIS IS AN EXTRACT OF THE FULL TEXT. TO GET THE FULL TEXT, SEE BELOW

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