Why is there a topiary cat as the image for this article? Well the article relates to a dispute at Clarendon Court, Sidmouth Road, London NW2 and a quick Google Street View ‘drive by’ will answer that question. On though now with the important bit - the law relating to this important case.

Last Friday, 10 December 2021, the Court of Appeal gave judgment in the case of Termhouse (Clarendon Court) Management Ltd v Al-Balhaa [2021] EWCA Civ 1881, which has serious implications for landlords, RMCs and RTM companies seeking recovery of service charges determined by a Tribunal under Section 27A of the Landlord and Tenant Act 1985 (“the 1985 Act”).

Introduction

Decisions by the Tribunal that service charges are payable are determinations for the purposes of Section 81 of the Housing Act 1996 meaning that, in the absence of payment in accordance with that decision, a landlord can proceed to forfeiture of the lease by serving a notice under Section 146 of the Law of Property Act 1925, and thereafter Court proceedings for possession of the property.

However, Section 81 is of little assistance where the right of forfeiture is unavailable. That might be where the landlord has waived (or lost) that right by some act which recognises the lease as ongoing notwithstanding the breach (for more, see here), or the right is simply not available as the service charges are payable to a RMC or RTM company that does not have a right to forfeit the lease, and the landlord has no interest in assisting the RMC or RTM company by enforcing the Tribunal determination by way of forfeiture.

The FTT does not itself have enforcement powers, but its decisions can potentially be enforced through Court mechanisms, notably :

• Section 176C of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”), which provides that any decision of the FTT or Upper Tribunal other than a decision ordering a sum of money to be paid is enforceable with the permission of the Court as an order of the County Court; and

• Section 27(2) of the Tribunals, Courts and Enforcement Act 2007 (“the 2007 Act”), which  provides that a sum payable pursuant to a decision of the FTT or Upper Tribunal shall be recoverable as if it were payable under an order of the County Court or High Court.

An order granted pursuant to such an application then enables the Tribunal determination to be enforceable as a County Court Judgment through standard enforcement methods (see here for more).

Background

The facts of the case in Termhouse were uneventful. Termhouse was the management company owned by the leaseholders (RMC) in a tri-partite lease. The freehold was held by a different company, Clarendon Court (Freehold) London Limited, also owned by the lessees. Mr Al-Balhaa was one of the leaseholders of the development, which comprised six blocks each of ten flats at Clarendon Court, Sidmouth Road, London NW2.

In September 2017, Mr Al-Balhaa made an application to the First-Tier Tribunal (“FTT”) pursuant to Section 27A of the 1985, for a determination as to the payability of service charges for the years 2013-2017. When the matter came before the FTT, the parties had agreed that the FTT only had to determine the service charges for the years 2015/16 and 2016/17, and a determination was so made in May 2018. The FTT’s determination set out disallowances to be made to the service charge costs but did not confirm the actual figure for the service charges payable by Mr Al-Balhaa, which Termhouse calculated to be £9,196.54 once account had been taken for the disallowances.

Mr Al-Balhaa failed to pay the £9,196.54 and in August 2018 Termhouse applied to the County Court enforce the FTT’s determination (note - it is not clear why this approach was taken rather than the landlord electing to forfeit the lease on the basis of the FTT’s determination). An order was made to enable Termhouse to enforce the FTT’s determination in the County Court in September 2018, but in October 2018 Mr Al-Balhaa applied to have that order set aside. That application was dismissed in September 2019, and Mr Al-Balhaa again appealed that decision. The Court of Appeal had to consider whether the FTT’s decision was susceptible to enforcement in the County Court.

The Court of Appeal’s decision

The Court of Appeal observed that FTT decisions on applications under Section 27A of the 1985 Act will sometimes state what is actually due from the tenant, whereas other decisions will just state that the relevant service charges were properly imposed without specifying a specific sum. Giving the leading judgment in Termhouse, Lord Justice Newey said :

“It seems to me that, even assuming that it is open to the FTT to say what a tenant actually owes rather than merely what has properly been charged, such a decision will be no more than declaratory, and in fact I should be surprised if the FTT went so far as to purport to order a tenant to make a payment in respect of outstanding service charges, let alone to require the tenant to do so within any particular time frame. Even, therefore, in a case in which the FTT expresses a conclusion on what the tenant currently owes, the landlord will not be able to resort to either section 176C of the 2002 Act or section 27 of the 2007 Act for enforcement. If needs be, the landlord should issue new proceedings in the County Court in which the FTT's decision will be binding on the parties.”

In other words, it was not open to Termhouse to apply to the County Court to enforce the FTT’s determination as a decision under Section 27A of the 1985 Act was not (1) a sum payable pursuant to an order for the Tribunal for the purposes of Section 27 of the 2007 Act (e.g. Mr Al-Balhaa was not actually being ordered to pay the service charges) or (2) a decision that was enforceable as an order of the Court for the purposes of Section 176C of the 2002 (the decision being declaratory in nature, e.g. a finding on a particular issue, which would not otherwise be enforceable by the County Court).

Therefore, in order to recover the unpaid service charges from Mr Al-Balhaa, Termhouse would be required to issue a claim in the County Court in reliance on the FTT’s determination that the charges were payable, to obtain a County Court Judgment which could then be enforced in the usual way as above.

The take home points from the above 

The Court of Appeal’s decision has serious implications for landlords, RMCs and RTM companies looking to recover unpaid service charges which have been determined by the Tribunal. Whilst a further claim should be straight forward in that the Tribunal’s decision should eliminate any form of defence to the claim, the need to bring a new claim will necessarily result in further costs and certainly delays in the service charges being recovered.

Therefore, the take home from the decision in Termhouse is :

1. The right of forfeiture should always be preserved as that will almost always result in payment of the unpaid charges, whether that be from the leaseholder/their lender or through the sale of their flat following re-possession; and

2. It is always preferable for the landlord, RMC or RTM company to bring any claim for unpaid service charges in the County Court (as distinct from commencing such proceedings in the FTT). Not only does this offer a better opportunity to make a claim for costs (for more, see here), the County Court Judgment made in that claim will be enforceable using any of the standard enforcement methods referred to above, where forfeiture is not available. In this respect, the landlord, RMC or RTM company should not delay and should issue any claim in the County Court quickly when a leaseholder has fallen into arrears (where appropriate), before an application is made by the leaseholder in the FTT.

At KDL Law we are specialists in recovering unpaid service charges and advise landlords, RMCs and RTM companies on a daily basis on statutory and contractual compliance, as well as legal process, in order to recover such sums. If you, or your clients, need any assistance in recovering unpaid service charges, please do get in touch with a member of the team on 01435 897297 or info@kdllaw.com.

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