With just over a week until the June quarter day, landlords should consider now whether there are steps they could be taking in the coming weeks to protect their ability to recover arrears which have already fallen due or sums which may shortly go unpaid.
Statutory demands, which require payment of a debt within 21 days, can be a cost effective, shock tactic where a tenant has the funds but is reluctant to part with them. Bear in mind that the debt must exceed the minimum threshold of £750 for a company debtor and £5,000 for an individual. Debts must be for a liquidated sum (a fixed amount) and not disputed. An unpaid demand is evidence that the debtor is unable to pay its debts and can be used as the basis of a winding-up or a bankruptcy petition, albeit there is no obligation to take this step.
Issuing Court proceedings for a debt claim is an alternative enforcement route and the appropriate step where a debt is disputed. If the arrears remain unpaid, a Court judgment can be enforced using High Court bailiffs or via a charging order against the debtor's property amongst other options. Proceedings take longer and are slightly more costly, the Court fee is a percentage of the arrears, but these costs can be included in the landlord's claim and recovered, provided the tenant remains solvent.
Landlords should also check for rent deposit deeds, guarantors, former tenants (liable under an AGA or an "old" lease, being a lease or an agreement for lease entered into prior to 1 January 1996) or a former tenant's guarantor, known as a "former guarantor", for additional routes of recovery if there are arrears under the lease.
Check the terms of any rent deposit deeds for the ability to draw down against the funds held and demand "top up" monies from the tenant to restore the rent deposit balance. If a guarantor is party to the lease, the contractual terms of the guarantee should be reviewed, and the guarantor's solvency checked, to see if this avenue of recovery can be pursued.
In the case of former tenants and former guarantors, notice needs to be served on the relevant party under Section 17 of the Landlord and Tenant (Covenants) Act 1995 within 6 months of the sums falling due in order to protect the landlord's right of recovery. It is important to note that if a former tenant or guarantor pays the sum demanded in a Section 17 notice, they will be entitled to take an overriding lease of the premises. Landlords should only serve notice on parties they would be happy to have as a direct tenant.
In the event of arrears or a tenant insolvency process, be proactive and take advice to mitigate losses insofar as possible and preserve avenues of recovery. If you need further advice, contact a member of the Property Litigation team.
