This section has only one beneficiary and that is the lawyer. I am a landlord and tenant litigation solicitor advocate. I have made thousands out of this section. However it does not mean that I think this section has any merit always a good idea.
Although the whole law of forfeiture is ripe for reform, this is one of the most pointless and understood pieces of legislation. It was introduced to protect lessees threatened with forfeiture for non payment of service charges by forcing the landlord to first have the service charges determined.
In London the Leasehold Reform Housing and Urban Development Act 1993 has been particularly effective so that many landlords are in fact the lessees themselves. However the problem with that is that these landlords have no capital and cannot survive unless service charges are paid promptly. The introcuction of this additional stage of proceedings increases recovery time by about 4 months.
In only a very small number of cases is there any defence at all and that usually arises out of a misunderstanding by the lessee that the proceedings are to recover the arrears are not simply to determine the amount of service charges. The result is that lessees frequently arrive at court with a complaints about leaks lack of cleaning etc but these complaints are totally irrelevant to the issue of whether the service charge has been correctly raised.
I do many of these cases and I have never once had a case where a determination was not made as claimed and where the defendant (the lessee) has not had to pay costs of around £1800. This adds substantially to the debt in circumstantially as where often the lessee has not paid the service charges because they are short of money.
Another aspect of section 81 which is perhaps not anticipated by the draughtsman is that proceedings are brought by the landlord only in respect of arrears of service charges for which the landlord intends to forfeit or re-enter. Under the law of forfeiture a landlord may only re-enter in relation to the last demanded service charges as the right to forfeit in respect of earlier charges is waived by subsequent demands. The result is that the only service charges that come before the court for examination are the last service charges but sometimes the lessee has a dispute over earlier charges which he has withheld. There is no room in the section 81 proceedings to consider that.
The next stage is that forfeiture proceedings but by that stage the lessee is almost always beaten into submission and simply pays up without further argument.
The section does not protect landlords because it increases their recovery time and it most certainly does not protect the lessee because of the laws of forfeiture mentioned above. Any removal of the landlord's right to have the determination in the county courts and force a landlord to go to the LVT would create grave difficulties for lessee landlords who would not be able to recover the costs before the LVT. If the lease permitted they would be able to add the costs of going to the LVT to the service charges but that would mean that regular payers would end up having to pay the costs of the defaulters which would be unfair. If the lease did not permit the recovery of costs through the service charges then lessee landlords would end up being insolvent.