by Dr. David Gethin, Solicitor, Housing Management Department
23 March 2016
I work with a number of social housing clients that have significant numbers of properties subject to long leases. The role of service charge officers cannot be overestimated in ensuring timely recovery of service charge arrears.
There are broadly 3 types of leaseholder who do not pay:
- Those who genuinely are suffering financial hardship and are struggling to pay;
- Those who dispute they should have to pay; and
- Those who have bought property for the purposes of subletting.
Where there is genuine financial hardship, the question to consider is, ‘What is the best way to secure payment without creating more stress and difficulty for the leaseholder?’ Admission of the arrears by the leaseholder and approaching the lender, or agreement to enter into a voluntary charge, are effective options whereby court proceedings can be avoided.
Where the leaseholder disputes having to pay, it is always worth considering whether the dispute is genuine and it may well be worth instructing solicitors before running to the court (or at least the County Court Money Claims Centre in Northampton) claim in hand.
When a proposed claim is referred to me, I scrutinise it to identify any weaknesses such as a failure to properly consult on qualifying works, or a failure to demand payment within 18 months of the costs having been incurred. If a case is flawed, a negotiated settlement will be preferable to, and less expensive than, criticism and adverse decisions in the Court or Tribunal.
Then there are the absentee leaseholders; some blissfully ignorant of the charges they should pay because they have not updated the landlord with correspondence details, others who willfully avoid paying. It is not uncommon to find that a single individual, or several members of one family, have built up a substantial portfolio of properties sublet for significant profit. This is where the service charge officer can do a lot to ensure that cash flow is not adversely affected. My ‘top tips’ are:
- Link accounts together on your system, if possible, or make a clear note on each account that the leaseholder holds other properties.
Update changes of address across the board – require notification in writing, ensure that the notification is recorded on all accounts, and inform the leaseholder in writing that this has been done.
Carry out portfolio balance reviews before reaching an agreement with the leaseholder for deferred payment on any one account. How many properties the leaseholder owes money on, and how much is owed overall, will be relevant. So too will the leaseholder’s likely total income from subletting. Look to reach one agreement to cover the whole picture.
Separate accounts types e.g. for insurance, ground rent, miscellaneous charges and ‘major works’, where maintained, should also be checked and taken into consideration.
Only accept agreements which are in writing and which include a statement that the leaseholder accepts that £x amount is owed at y.
Credit payments received against the oldest debt on the account and inform the leaseholder in writing that this is being done, unless the leaseholder has specified that the payment is to cover a specific invoice. This reduces the risk of debts becoming irrecoverable due to being more than 6 years old.
- Carry out regular reviews, at management level, to ensure that collection is kept on track.
I have recently advised a client where the family members owe an eye watering £1/4 million in unpaid service charge and major works arrears on a portfolio of 30 properties. Whilst some fairly ad hoc agreements have been reached on some accounts, other accounts have not had a payment made in nearly 4 years and, in some cases, the last correspondence chasing the arrears on the account was sent over a year ago.
It is the leaseholder’s obligation to pay the service charge but it is the landlord’s responsibility to protect the business and its cash flow by ensuing appropriate action is being taken.
Dr. David Gethin
020 8768 7067
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