Chaos avoided - A hugely important decision today from the Court of Appeal confirming the Court’s role in determining Service Charges
24th May 2021
24th May 2021
At 10:00am today the Court of Appeal handed down its hugely important judgment in Keith Vernon Gell -v- 32 St John’s Road (Eastbourne) Management Company Limited, a case which could have transformed, in a very bad way, how the Court dealt with future claims for service charge arrears. We are pleased to report that KDL Law successfully opposed the action for its landlord client (and for all of those involved in property management).
This a straightforward service charge arrears claim.
32 St John’s Road (Eastbourne) Management Company Limited (“32SJR”) is a leaseholder owned landlord company of a house divided into 7 flats. Mr Gell is the owner of a long lease of a flat in the block who pays 22.5% of the costs expended on the building. Mr Gell had opposed a demand for service charges on grounds other than reasonableness of the sums sought. A standard claim for a specified sum (the arrears) was raised by 32SJR in the County Court in the normal way. Mr Gell’s Defence to the claim was struck out for being an abuse of process, the details of which are not relevant to the decision in the Court of Appeal. Upon striking out the Defence the County Court entered Judgment in default for the service charge arrears sum specified in the claim.
The question for the Court of Appeal
The questions before the Court of Appeal were as follows:
Whether s.19 Landlord and Tenant Act 1985 (“LTA1985”) prevented the Court from entering judgment in default in a service charge debt claim where there was either no Defence or the Defence offered had been struck out (and therefore there was no Defence);
Whether the Court had an obligation to consider the adequacy of compliance with consultation requirements, where no dispute as to the same had been raised, before judgment can be entered;
Whether tenant’s status as a litigant-in-person affected the position in either of the above cases.
Mr Gell’s argument was that s.19 LTA1985 prevented the Court from simply entering judgment in a debt claim that related to service charges. This was reliant upon the wording of section 19(2) which states that:-
Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable…
Mr Gell averred that s.19(2) required the Court in any claim for service charges to consider and assess whether the sum claimed was reasonable before making judgment for the specified sum of the claim, even though no Defence as to the reasonableness of the sums demanded had been filed. So this would apply even where the defendant tenant had not responded to the claim at all or, if they had and, as in this case, the Defence had been struck out.
When fully considered, what Mr Gell was seeking here was a fundamental change to how the Court processed service charge debt claims as distinct to any other debt claim. Had Mr Gell succeeded in his arguments a landlord, RMC or RTM company bringing a claim for service charge arrears would need, in every case, to provide to the Court at the point of issue of any proceedings, all relevant documents to enable an assessment of the service charge. Presumably the claim form would necessarily be accompanied by all papers relevant to the debt including:
All of the demands;
Any notices served (s.20 and other notices);
All of the accounts;
All receipts and dockets supporting the accounts for each financial period in question;
No doubt all relevant correspondence; and
The claim would likely need to be accompanied by detailed witness statement evidence too, seeking to anticipate and answer questions that might arise in an inspection of the documents.
Of more importance to the considerable time and cost in putting together the above for every claim, the Court, on receipt of the claim and after expiry of the date for the filing of a Defence, would not be able to enter judgment but in every case it would first need to pass the matter to the Judge (or transfer it to the Tribunal) who would need to spend some, potentially considerable, time thumbing through all of the above documents and forming an opinion as to what was reasonable as a claim for service charges. Then and only then would the Court be able to enter judgment notwithstanding that the tenant had raised no Defence, or perhaps not even responded, to the claim.
The Judges hearing the appeal considered the above, analogising their role as either that of “referee” or as “goalkeeper”. They considered that the role of the Court was that only of referee and thus the tenant’s Defence must raise the issue of reasonableness of service charges if the Court is to investigate the sums as in dispute. In other words, the Court’s role in the absence of a Defence as to the reasonableness of service charge is not inquisitorial at all.
Mr Gell had not pleaded at any stage in his Defence that he disputed the reasonableness of the charges and therefore the question of reasonableness was not before the Court in any form. The Court held that s.19 LTA1985 does not place an onus on the Court to investigate the issue of reasonableness unless pleaded. It confirmed that if Parliament had intended an inquisitorial process, the statutory language used in section 19 LTA1985 would have been very different such as to clearly prevent the Court from making an order unless it is satisfied that it is reasonable to do so.
As an aside, the Court commented that the same principle applies to section 20 LTA1985 - there being no independent obligation on the Court to consider the adequacy of compliance with consultation requirements before judgment can be entered.
Importantly, the Court also held that a tenant’s status as a litigant-in-person does not affect this position.
This is a hugely important decision on an issue that in all the time since the implementation of LTA1985 had not previously come before the Court. It is a decision that will come as a huge relief to landlords, RMCs, RTMs and professionals in the property management sector as, had the Court found for Mr Gell, the process of unopposed service charge recovery would have been considerably more longwinded, prohibitively expensive and filled with uncertainty. All of these points were considered fully by the Court in coming to this decision to dismiss Mr Gell’s appeal.
Thankfully then, it is “business as usual” for all concerned.
KDL Law represented the Landlord in this case and Ryan Kohli of Cornerstone Barristers successfully presented the case for the Landlord in the Court of Appeal.
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