Landlord and tenant – Forfeiture – Possession – Housing Act 1996 – Landlords bringing claim for unpaid service charges – Tenant filing no acknowledgment of service or defence – Default judgment entered for landlords – Landlords claiming possession on ground of forfeiture of lease – Whether such claim precluded by section 81 of 1996 Act – Whether default judgment a “final determination” that service charge payable within meaning of section 81 – Claim allowed
The claimants were the landlords and the first defendant was the tenant under a lease of a flat for a 99-year term from 1996; the second defendant guaranteed the first defendant’s obligations under that lease. The lease contained covenants by the first defendant to pay an annual rent plus service charges by way of further or additional rent, payable in advance on the usual quarter days. There was a proviso for re-entry by the landlords in the event that any part of the rent was in arrears and unpaid for 21 days after becoming due.
The first defendant failed to pay the service charges falling due between December 2009 and December 2010, resulting in arrears of £6,509. In February 2011, the claimants brought proceedings under CPR 7 to recover the unpaid sums. Neither defendant filed an acknowledgment of service or a defence. In March 2011, a default judgment was entered for the claimants in the sum of £7,919 in rent, service charges, contractual interest and contractual costs.
The claimants then brought proceedings for possession on the ground that the lease had been forfeited. The defendants contended that the claimants were not entitled to possession on that ground since there had been no “final determination” that the amount of the service charge was payable, within section 81 of the Housing Act 1996. The claimants submitted that a default judgment was a final determination for that purpose.
Held: The claim was allowed.
A default judgment was a final determination for the purposes of section 81 of the 1996 Act. There was nothing in the statutory background or the words of the statute that compelled the contrary conclusion. Section 81 provided a tenant with an opportunity to challenge service charges before possession proceedings were brought on the grounds of non-payment. The wording of the section did not, either expressly or by necessary implication, remove or detract from the right of a landlord to seek a default judgment, in accordance with the usual rules of procedure, where the tenant failed to engage with the process that section 81 had created in the tenant’s favour. Although the original version of section 81 had not contained the word “final”, the inclusion of that word in the section as amended did not alter the position. The reference to finality merely underlined that the date after which the determination was held to be binding on the parties was to be calculated by reference to the period within which the tenant could seek to overturn the initial determination of the amount by an “appeal or other challenge”. The absence of any specific time limits for applying to set aside a default judgment did not mean that there could be no finality for the purpose of section 81. Such an application was not a “challenge” within the meaning of the section; that word bore a specific, quasi-technical meaning that referred only to a challenge to a decision made in the course of arbitration, consistently with the wording of the Arbitration Act 1996. A default judgment was binding on the parties as a determination for certain purposes, including those relating to issue estoppel: New Brunswick Railway Co v British French Trust Corp Ltd [1939] AC 1, Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 and Pugh v Cantor Fitzgerald [2001] EWCA Civ 307 applied. Where a default judgment had been entered, the issues, if properly scrutinised and identified, were to be treated between the parties to that judgment as having been determined.
Such a conclusion was consistent with the policy of section 81 of providing the tenant with a buffer or breathing space. To reach the contrary conclusion would put landlords at an unnecessary disadvantage and prevent them from ever obtaining possession of property without, effectively, conducting a trial. It would create a degree of uncertainty and might involve landlords in disproportionate expenditure and preparation for hearings about uncertain issues.
Amanda Gourlay (instructed by Charles Russell) appeared for the claimants; Jennifer Meech (instructed by Sheridans) appeared for the defendants.
Sally Dobson, barrister
