Court of Appeal confirms correct approach when enforcing tribunal determinations

The Court of Appeal case of Termhouse (Clarendon Court) Management Ltd v Al-Balhaa (2021) EWCA Civ 1881 made clear that the First Tier Tribunal (FTT) has no power to enforce its decisions; enforcement is the purview of the County Court.

Facts

Termhouse, the respondent, acts as a management company and has responsibility for raising service charges for the tenant owned company that owns the building that Mr Al-Balhaa holds a long lease of one of the flats. Mr Al-Balhaa made an application to the FTT in September 2017 under s.27A of the Landlord and Tenant Act 1985 concerning various issues surrounding the validity of service charges.

The FTT made various determinations, one of which was that the service charges for the term of 2016-2017 were owing by Mr Al-Balhaa. Termhouse, sought to enforce the determination and an officer sitting in Willesden County Court ordered that the service charges be paid in the sum of £9,316.04 (including various fees).

Mr Al-Balhaa applied to have the order of the court officer set aside and was dismissed in the County Court, he then appealed and was dismissed in the High Court. He further appealed to the Court of Appeal; with the court ultimately allowing the appeal.

Law

The starting position is that the FTT has no power to enforce its decisions, therefore a separate enforcement action must be taken in the County Courts. In certain circumstances, this can be done via an application under s.176C of the Commonhold and Leasehold Reform Act 2002 or s.27 of the Tribunals, Courts and Enforcement Act 2007.

However, the Court of Appeal in deciding this case made it clear that this does not apply to determinations on service charges under s.27A Landlord and Tenant Act 1985.

Giving the leading judgment in the appeal, 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 s.176C of the 2002 Act or s.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 the circumstances, it seems to me that the FTT decision can no more be enforced under s.176C of the 2002 Act than it can under s.27 of the 2007 Act. It neither orders Mr Al-Balhaa to make any payment nor requires him to do or refrain from doing anything else. It is declaratory in nature and so not susceptible to enforcement pursuant to either s.176C of the 2002 Act or s.27 of the 2007 Act.”

Commentary

This decision highlights the importance of preserving and using the right to forfeit where available (in this case, the landlord decided not to use the FTT determination for the purposes of serving a s.146 notice). Forfeiture proceedings threaten the security of property and will likely result in payment of the outstanding service charges, either from the leaseholder or their mortgage lenders or through the sale of the property following re-possession.

In addition, this case highlights the importance of landlords being pro-active in seeking recovery of unpaid service charges. Most leases contain provisions allowing for the recovery of legal costs incurred by the landlord “incidental to the preparation and service of a notice under s.146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under s.146 or s.147 of the Act”.

As it is necessary for a determination to be obtained before serving a s.146 notice (and a County Court money judgment counts as a determination under s.168 Commonhold and Leasehold Reform Act 2002) and provided the landlord signposts their tenants from the beginning of taking legal action that the end result will be serving a s.146 notice, then the landlord would be able to recover their legal costs from the defaulting tenant.

If the tenant is the one making the application to the FTT for determination of payability and reasonableness of service charges, as was the case with this appeal, then the landlord would not be able to recover their legal costs in the FTT proceedings.

Furthermore, the County Court judgment can be used where the right to forfeit has been waived by any of the standard enforcement methods.

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If you have any queries regarding the content of this article or wish to discuss any issue regarding the management of your tenants or stock, please contact Clive Adams, Jonathan Hulley or any member of the Social Housing Team, to see how Birketts can help you.