Recovering rent arrears from residential tenants
Recovering rent arrears from residential tenants
Recovering rent arrears from residential tenants who have vacated the premises without leaving a forwarding address is one of the main concerns landlords face after obtaining a possession order. With court fees amounting to nearly £500, landlords can end up spending several thousand on legal fees plus months of rent arrears before a bailiff can be appointed.
2 frequently asked questions by landlords on recovering rent arrears
This blog covers 2 of the most frequently asked questions I receive from landlords on recovering rent arrears.
What chance do I have of recovering arrears?
Tenants do not have an incentive to pay money judgments attached to possession orders once they vacate as, unlike straightforward money claims, they are not automatically recorded against their credit score as county court judgments “CCJs”. It is only upon taking enforcement action or applying for default judgment that the tenants suffer any damage to their credit record. This point is also relevant to landlords when undertaking those all important reference checks on new tenants.
First check – Who’s liable?
Tenants will be jointly and severally liable for the rent arrears meaning you can recover all the sums due from only one of the tenants leaving them to chase the others for their share. This could prove valuable information if you find out one of the tenants (whether they were in occupation or not) is worth pursuing more than the other.
Guarantors might be your first port of call as often they will be better able to pay the judgment debt. Check what the terms say in the tenancy agreement or deed of guarantee as often it says the guarantor is only liable if he has been given 14 days’ notice of the arrears not being paid. If this is the case fire off a letter straight away and if it is not too late add them to the possession proceedings so that you can secure a judgment against them.
Next check – Pre-Sue Report
The chance of recovery depends mostly on locating the tenant/guarantor and finding out if they have any assets and/or the ability to pay the judgment. Here we usually employ a specialist company to prepare a formal report for around £30 that summarises for us the finances of the debtor and often their whereabouts to.
- Tenant with assets that can be located = high chance of recovery
- Tenant with no-assets that cannot be found = Low success rate – You have 6 years to enforce the possession order and so you may prefer to wait to see if the tenant’s position changes and undertake another pre-sue report in a years time.
What enforcement steps can landlords take after obtaining a judgment for rent arrears?
- 1. Bailiffs
We instruct high court bailiffs to recover sums directly from tenants. After applying to the court to transfer the case to the High Court you obtain what is called a writ of control which gives the bailiffs the authority they require to recover personal belongings from the tenants to the value of the sums owed to you.
Cost to you: Court fee of £66 (recoverable from tenants) and £75 plus VAT if the Bailiff is not able to recover sums owed after three visits.
• transferring case to High Court and obtaining writ of control – 1-2 weeks
• 7 day letter from bailiffs to tenants
• up to one to two months after that depending on how many visits required.
- 2. Statutory Demand
If you have a Judgment debt or debt which the tenant has admitted liability and is over £5000 you can deliver to the debtor a formal demand in a prescribed form stating that if they do not pay the sums owed to you within 21 days you will apply to make them bankrupt; the threshold is a lot less (at £750) if the tenant is a company. Often such notices can elicit quick responses from the recipients as they want to avoid bankruptcy at all costs (including yours).
You will typically have 4 months from serving the demand to apply to bankrupt a private individual and the debtor will have 18 days (if based in the UK) from service to challenge the notice and seek for it to be set aside. Individual debtors who apply successfully to set aside a demand are often able to recover their legal costs, so care needs to be taken to ensure this is used properly.
Note : When applying for bankruptcy of an individual the Petition fee is £1500 plus the court fee of £302. When applying to wind up a company the fee is £2600 plus the court fee of £302.
- 3. Charging Order
If your tenant or guarantor owns another property you will want to ensure that this cannot be sold or transferred without them first paying you the sums owed. Debtors will often have 14 days (unless court order says otherwise) to pay the debt owed to you. Once this deadline expires you can apply for a charging order against the property. Unlike court orders that have a 6 year deadline in which you can enforce payment, charging orders mean the debt will usually remain payable until removed from the debtor’s title to their property.
Previously we acted for a landlord in her early 80s who had the benefit of a charging order made against a former tenant over 20 years ago. On this occasion, after getting back in touch with the former tenant, they ended up paying the rent arrears of £2500 plus interest of around £10,000 that had accrued.
I have covered above the most popular routes landlords take in order to recover sums due to them. There are other options such as third party debt orders which can stop tenants taking money out of their bank accounts or allow you to recover from someone who owes the tenant money. You can also apply for an attachment of earnings order which allows you to take payment directly from the tenants’ wages to pay the debt owed.
We are regularly instructed by both private and commercial landlords regarding recovering rent arrears, possession and outstanding debts from tenants. Visit our landlord and tenant disputes page for more information on issues we can help with or contact a member of the Property Litigation team by emailing email@example.com.