LEGAL VIEW | Recovering rent arrears through the courts
It’s no secret that North West high streets have been among the worst affected by the pandemic, and the closure of non-essential shops in this latest lockdown could heap further pressure on landlords’ income, writes Lucie Barnes of Brodies.
Since March, temporary legislation has prevented landlords from using specific measures to recover rent arrears from commercial tenants during the height of the Covid-19 pandemic.
These rules are now in place until 31 December, meaning that typically cheap and quick enforcement options such as peaceable re-entry to end the lease, statutory demands for payment and winding up petitions, are a no-go if a non-paying tenant’s business has been impacted by coronavirus.
Amid the latest England-wide restrictions, landlords will understandably be concerned about the additional challenge this poses to their already-strained sources of rental income. So, what are their options to protect their revenues?
While a new voluntary code of practice for commercial property relationships encourages landlords and tenants to negotiate their way through outstanding rent issues, anecdotal evidence shows that commercial landlords across England and Wales are only recovering around 70% of rent in this third quarter of 2020.
Going through the courts, however, is still an option. It’s true that some court proceedings can be protracted and costly. Those cases that run all the way to a trial take time and will incur substantial spend on both sides. More often than not, however, they conclude before the trial stage.
In fact, it’s possible to bring a case to court for a simple hearing shortly after starting legal proceedings. Let’s look at what’s involved.
How do I get a simple hearing for my claim?
Apply for a ‘summary judgment and/or strike out’ – in effect, where court proceedings are brought to conclusion before they reach trial. A court may award a summary judgment if the tenant has no grounds to defend the action. This type of application can be effective where there is an existing paper lease or tenancy document imposing an express obligation on the tenant to pay rent.
How long does it take to get to a simple hearing?
Once a claim is issued and papers have been served on the non-paying tenant, the tenant has 14 days to file an ‘acknowledgement of service’ stating whether they intend to defend the claim, or accept part and defend part of it (or contest the jurisdiction in which the case is being heard).
If the claim is defended, the tenant then has 28 days from the date the claim is served on them, to file a defence. The landlord can issue an application for summary judgment/strike out once the tenant has filed its acknowledgement of service. In practice, the application is often prepared at the same time as the claim documents. The landlord may, however, wish to wait and see if the tenant files a defence before making the application.
If the tenant simply ignores the claim, the landlord may request ‘judgment in default’ after expiry of the 14-day period (or 28 days where the tenant has indicated their intention to defend the claim, then fails to do so), by using the prescribed court form.
How much does it cost?
There’s a court issue fee required, which depends on the value of your claim. For example, arrears of up to £10,000 will incur an issue fee of between £35 and £455. For claims of £10,000 to £200,000, the issue fee will be 5% of the claim value. Above this, it’s a flat fee of £10,000. The fees are reduced if the landlord issues their claim via the online claims portal, although this is not available for claims above £100,000.
The fee for making an application for a summary judgment and/or strike out is £255. The court will list the landlord’s application for a simple hearing – most likely held as a telephone hearing – which should be within weeks rather than months depending on how busy that particular court is.
What happens with the judgment?
The judgment can be enforced by transferring it up from the county court to the high court, where a ‘writ of execution’ – a court order – is issued. It’s possible to seek enforcement at county court level, but recovery prospects are reduced because bailiff enforcement powers are less.
If the claim is above £100,000, the claim will already be in the high court.
There are differences with the fees and processes of enforcement, and it’s worth noting that there are several other enforcement mechanisms available to landlords.
How long does enforcement take?
It’s a relatively quick process that typically takes no more than two weeks. A high court enforcement officer will handle the ‘transferring up’ process to obtain the writ and issue and serve a seven-day notice of enforcement on the tenant. Enforcement can be completed within days of the writ being issued by the court.
How much does enforcement cost?
Currently, a £66 court fee applies for the writ, with the landlord also responsible for a compliance fee of £75 in the event of non-recovery. The tenant is responsible for these fees, along with other associated fees and costs.
Going into the Christmas season, the importance of communication between landlords and their tenants cannot be understated. But, where that isn’t possible, the fact that a route via the courts is still a viable option for recovering rent arrears may be a comfort to those landlords in the North West that are concerned about a difficult period ahead.
Lucie Barnes is a senior associate in litigation at law firm Brodies, and chair of the Lancashire & Cumbria branch of the Association of Women in Property.