Is ‘Default Judgment’ adequate in determining Service Charge arrears for the purposes of s.81 of the Housing Act 1996?

An appeal, decided in the Central London County Court in the case of Church Commissioners for England v. (1) Koyale Enterprises (2) Naresh Thaleshwar overturned a decision of District Judge Lightman who had ruled that a default judgment entered on behalf of a claimant landlord did not satisfy the requirements of section 81 of the Housing Act 1996.

Section 81 of the 1996 Act requires that a landlord cannot exercise a right of re-entry for failure to pay a service charge unless the amount of the service charge is finally determined by (or on appeal from) a leasehold valuation tribunal or by a court, or by an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement; or the tenant has admitted that it is payable.

The appeal judge held that he had “no hesitation” in concluding that a default judgment for the purposes of section 81 is indeed a “final determination” and thus is sufficient for the purposes of section 81.

His reasoning was as follows:

1. There is nothing in the wording of section 81 which suggests the word “determination” excludes normal remedies open to a landlord such as a default judgment
2. A default judgment was binding between the parties. A number of Privy Council authorities were presented to the judge by the appellant’s counsel, to demonstrate that parties had been estopped from pursuing subsequent actions on those issues which had already been subject to a default judgment .The judge concluded, “…where a default judgment has been entered, the issues – when properly scrutinised and identified – are to be treated as between the parties to that judgment as having been determined. In my judgment those decisions are also support for the contention that a default judgment is, for the purposes of s81 , a determination”
3. The purpose of section 81 is to provide a tenant with a “buffer or breathing space” before forfeiture is granted and this was not undermined by a default judgment.
4. For there to be a determination there has to be a hearing, and without a defendant to challenge the issues, they cannot be ascertained.
5. The district judge’s original decision would put landlords at a distinct disadvantage as they would not be able to obtain possession of the property without a trail and incurring costs accordingly.

This decision will be pleasing to Landlords and Management Companies alike as the original decision would have made it very difficult to proceed with forfeiture when dealing with absent owners or simply those that like to bury the head in the sand!