Blog - 24/08/2020
Service Charge and Ground Rent Recovery – Long Residential Leases
The recent news that the stay on all possession proceedings imposed by CPR Practice Direction 51Z (originally due to end on 23 August), has been extended to 20 September 2020 (please see our previous update) is likely to be a blow to landlords and managing agents of long residential leasehold properties. This is particularly the case for those who own or manage blocks with a high number of tenants who regularly default on payments of service charge and ground rent.
Prior to the Covid-19 crisis, and accordingly prior to the new CPR Practice Direction, collecting (undefended) payments of arrears from defaulting tenants was often a straightforward process. If payment was not made then judgment was obtained. Then if necessary the landlord could proceed to determine the lease, given that the vast majority of long leases do allow the landlord to do this if the tenant is in breach of any covenant. In practice, it was rarely necessary to reach that stage and tenants tend to pay rather than risk losing a valuable asset. If the tenant had a mortgage lender, it is our experience that they would often discharge any arrears on the issue of a section 146 Notice, without the need to go as far as issuing possession proceedings. There is also the added bonus that many leases also contain a clause entitling the landlord to recover from the tenant any legal costs incurred in the preparation of a section 146 Notice, meaning that instructing solicitors to collect the arrears in this way could be very cost effective.
Of course, as the threat of repossession is currently off the table for now, it is proving more difficult to collect arrears of service charge and ground rent. There are however many alternative enforcement options still open to landlords, some of which can be very effective. Principally, landlords can still commence proceedings for payment of a money sum, such as outstanding rent or service charge.
As the majority of tenants of long leasehold properties are individuals, when pursuing arrears landlords need to comply with the Debt Claim Pre-Action Protocol, before proceedings can be commenced. After the initial Letter Before Claim is issued, the debtor has 30 days to respond. If they do respond within this timeframe, depending on what they say, it may be necessary to allow them a further 30 days before proceedings can be issued.
Given these timeframes, providing the Government does not decide to further extend the stay on possession proceedings, then issuing a Letter Before Claim now for both the arrears and seeking possession would mean that all preliminary requirements have been met and the out of pocket landlord would be ready to go at the point when the threat of possession proceedings would once again have teeth. It is worth noting though that once the current stay comes to an end, the courts, which are already struggling with their workloads, are going to have a huge backlog of possession cases.
It may therefore be well worth sending a Letter Before Claim addressing both arrears and possession, but commencing legal action against defaulting tenants for arrears alone, and sooner rather than later, leaving the issue of possession until a later date if payment is still not made.
If you are in need of any assistance with the matters addressed above, or would like to discuss current enforcement options for landlords, please contact Joanna Osborne, Emma Gregory, Anne-Marie Harding or any member of the Property Litigation team.
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Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
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