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Forfeiture for service charge arrears – will a default judgment do?

S.81 Housing Act 1996 restricts the landlord’s right to forfeit for arrears of service and/or administration charges unless the tenant admits the debt or it has been or “finally determined” by a court or tribunal.

Similarly, s.168(2), Commonhold and Leasehold Reform Act 2002 prevents the service of a forfeiture notice under s.146, Law of Property Act 1925 until the breach of covenant has either been admitted or “finally determined” by a court or tribunal.Claims for service and/or administration charge arrears often result in the landlord obtaining default judgment. As such, whether a default judgment is a ‘final determination’ entitling the landlord to forfeit under s.81, HA 1996 and s.168, CLARA is an important question.

In the absence of authority, the County Courts have failed to give a consistent answer. In Hillbrow (Richmond) Ltd v. Alogaily, (2006 unreported) the court found that a default judgment was not a ‘final determination’ as it was essentially an administrative step involving no consideration of the merits. That conclusion had been endorsed by the editors of inter alia, Woodfall and The White Book.

Church Commissioners v. Koyale Enterprises and another [2012] 2 EG 42 saw HHJ Dight reject this approach. He found that the wording of s.81, HA 1996 does not, either expressly or by necessary implication, remove or detract from the right of a landlord to seek a default judgment where the tenant fails to engage with proceedings.

HHJ Dight’s interpretation has now been endorsed – albeit by way of obiter - in Faizi v Greenside Properties Ltd [2013] EWCA Civ 1382. In refusing permission to appeal, Kitchen LJ remarked that: “... it matters not whether [the] judgment was obtained by default or following a contested hearing. In either case the requirements of section 81 are fulfilled”.

Although there remains no binding authority on the point, it does seem that momentum is building in support of HHJ Dight’s view. It is notable that the editors of Woodfall cite Church Commissioners v. Koyale in the text’s most recent update. Whether this landlord-friendly interpretation of the statutes continues to find favour remains to be seen.

Rahul Varma / 1st Apr 2014


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