Service Charge: Assessing judgment and costs where a defendant’s defence and counterclaim are struck out (Gell v 32 St John’s Road (Eastbourne) Management Company Ltd – 2021)

Where a tenant defendant’s defence and counterclaim are struck out, and where the question of reasonableness of service charge is removed from consideration, the Court of Appeal assesses the appropriate judgment and course of action to take in respect of costs.

The background

In Gell v 32 St John’s Road (Eastbourne) Management Company Ltd [2021], the landlord, acting through its management company, brought a claim against a tenant for unpaid service charges, following a previous successful claim against the same tenant. The tenant served a defence and counterclaim, but the defence was struck out and default judgment entered against the tenant.

At first instance, the court referred the matter of reasonableness of the service charge to the First-tier Tribunal, which was appealed by the landlord. The court allowed the appeal and set aside the order. The court found that by transferring the issue to the FTT, the defendant would effectively have been given opportunity to defend a claim where his defence had been struck out. Judgment was entered in favour of the landlord in the sum claimed. The tenant appealed.

The decision

The Court of Appeal dismissed the tenant’s appeal, finding in favour of the landlord.

The court assessed whether the decision to enter judgment in favour of the landlord was correct in law. S.19 of the Landlord and Tenant Act 1985 was considered, in whether the management company was reasonably entitled to the judgment without a defence being considered. The tenant should have raised issues of reasonableness in its defence if it had wished for these matters to be considered. The Court of Appeal found that the tenant had not entered any documents showing substantial challenge to reasonableness of service charge, and it could not raise issues without pleading them in defence. The decision to enter judgment in favour of the landlord was not wrong in law.

The Court of Appeal also considered whether reasonableness of service charges was at issue when the defence was struck out. In its judgment, the court stated that the judge should have given consideration to issues remaining open. The tenant had not made any arguments relating to reasonableness, and the transfer to the FTT was therefore not correct as the decision was not one which was available to the Deputy District Judge due to a lack of pleaded issue.

It was appropriate to enter judgment and make a costs order in favour of the landlord.

Advice and action for landlords

The decision in this case turned on the tenant’s failure to plea arguments in defence which it later brought into proceedings. Having failed to make representations in its defence regarding the reasonableness of the service charges at issue, the tenant was unable to deliberate on the point later when its defence had been struck out.