Mohammadi v Anston Investments Ltd & Anor

The Court of Appeal allowed the appeal in part. It held that section 81 of the Housing Act 1996, which prevents re-entry or forfeiture for unpaid service charges unless the amount is agreed or determined, applied to the defendants' re-entry in November 1996 and therefore limited the terms on which relief from forfeiture could be granted. Because the county court proceedings were within section 138 of the County Courts Act 1984, the mandatory terms for relief should have been confined to payment into court of all rent in arrear and the costs of the action; service charges (not being 'rent' under the lease) and costs attributable to service‑charge claims should have been excluded from those mandatory terms.

The court also held, on construction of the lease (clause 2(2)(h)), that no strict formal demand in a particular form was a precondition to recovery of service charges prior to re-entry; the schedules and accounts used in this case sufficed. After lawful re-entry the landlord could recover, as mesne profits, sums equivalent to the contractual service charges without contractual formalities, subject to evidential proof. The judge's original relief terms were therefore varied to omit mandatory payment of service charges and certain costs, with a separate money judgment to be entered for those omitted amounts.

Background and parties: The appellant, the tenant, appealed against a Central London County Court decision (HHJ Hallgarten QC) following a six day trial in April 2002. The action concerned a flat let under a 1971 lease; the landlord defendants sought arrears of ground rent and service charges and possession by forfeiture following landlord re-entry in November 1996.

Nature of the claim and procedural posture: The defendants counterclaimed for unpaid ground rent and service charges and sought possession by forfeiture. The tenant sought relief from forfeiture and resisted the sums claimed. The judge below gave judgment for the defendants on the counterclaim and granted relief from forfeiture subject to onerous terms including payment of large arrears of service charge and interest. The tenant appealed on two grounds: (i) that section 81 of the Housing Act 1996 barred re-entry for unpaid service charges which were neither admitted nor determined; and (ii) that contractual provisions required a demand/account as a precondition to recovery of service charges (and that the landlord had not made such demands after June 1995), as well as reliance on section 20B of the Landlord and Tenant Act 1985.

Issues framed: The court addressed (a) whether s.81 applied and, if so, whether the relief from forfeiture should have been limited by section 138 of the County Courts Act 1984 to payment of rent in arrear and costs (excluding service charge sums and related costs); (b) the construction of clause 2(2)(h) of the lease and whether a formal demand was a condition precedent to recovery of service charges; (c) whether service charges could be recovered after re-entry as mesne profits; and (d) whether s.20B applied and whether the tenant should have been permitted to plead it.

Reasoning and conclusions: The court held that re-entry in November 1996 was effected after s.81 came into force (24 September 1996) and that s.81 therefore barred re-entry for unpaid service charges which were neither admitted nor determined. Because the counterclaim was a county court action, section 138(3) applied and the mandatory terms for relief should have been limited to payment into court of all rent in arrear and the costs of the action; "rent" did not include service charges under this lease because the lease did not deem service charges to be additional rent. Costs attributable to the service charge claim were to be excluded from the "costs of the action" for s.138 purposes. On construction of clause 2(2)(h) the court found no strict formal demand requirement; the assorted schedules and notices supplied satisfied the contractual account requirement before re-entry. After re-entry the landlord could claim amounts equivalent to service charges as mesne profits without following contractual formalities, provided they were proved. The court refused tenant permission to amend to rely on s.20B where there was no evidential basis for the plea.

Remedy: The Court of Appeal varied the relief from forfeiture terms by omitting payment of the service charges and certain costs from the mandatory terms and ordered that a separate money judgment be entered for the amounts omitted, with consequential amendments to the order and a partly successful costs order for the appeal.

Appeal allowed in part. The Court of Appeal held that section 81 of the Housing Act 1996 applied to bar re-entry for unpaid service charges that were neither admitted nor determined at the time of the landlord's re-entry; accordingly, because the counterclaim was a county court action, the mandatory relief terms under section 138 of the County Courts Act 1984 were confined to payment of rent in arrear and costs of the action, excluding service‑charge sums and costs attributable to the service‑charge claim. The lease was construed to require no particular formal demand beyond the accounts supplied; after re-entry mesne profits equivalent to service charges could be claimed without contractual formality provided they were proved. The lower court’s relief terms were varied to remove mandatory payment of service charges and certain costs and a separate money judgment was to be entered for those sums.

Appeal from the Central London County Court (HH Judge Hallgarten QC). Main trial April 2002; initial substantive judgment 29 May 2002; supplemental judgment 12 June 2002; final judgment and order 24 October 2002. Permission to appeal granted by Peter Gibson LJ; appeal determined by the Court of Appeal (May LJ and Sedley LJ) on 16 July 2003 ([2003] EWCA Civ 981).