See you in Court!

If you’re a landlord, or in any other business for that matter, sooner or later someone will owe you money. It also works the other way around, sometimes landlords owe their tenants!

Whilst we must sympathise with those in financial difficulties, it’s often futile to prolong the agony; the banks and mortgage companies certainly don’t, so why should you? We cannot however, sympathise with those who should pay and can pay, but for one reason or another won’t pay.

Yes, we should try to investigate. Maybe your commercial tenant is going through a difficult trading period, or your residential tenant has been made redundant? You may be able to re-schedule rent payments and/or advise on Housing Benefit claims.

But in my experience tenants in difficulties, commercial and residential alike, don’t always communicate well: in fact they often fail to communicate at all, not responding to telephone calls, letters or even knocks on the door.

With commercial tenants we can use the short-sharp shock of bailiffs, or even the forfeiture procedure, but there are situations where it’s preferable not to force the issue. A wiser course may be to encourage your tenant to trade on and if necessary sell-up and assign the lease, thus releasing funds to pay the debt: this way you end up with no debt, a viable tenant, no void period and no letting expense!

The rent arrears claims procedure with residential tenants is fraught with difficulties. Sometimes it’s better to go for possession at the end of the 6-month fixed-term and chase the debt later.

Making a claim through the Small Claims Court can be a very effective way of doing this. The court system grinds along at a snail’s crawl pace but it can achieve the desired result in the end.

Very often, using a solicitor to handle the claim does not make commercial sense: fees are too big a proportion of the settlement - Small Claims Track – up to £5,000. With the Fast Track – up to £15,000 and the Multi-Track – above £15,000 you can still DIY, but a lawyer’s expertise may be more effective.

A DIY small claim is not rocket science and handling it yourself gives you a lot of flexibility. The system is designed for and is sympathetic to the lay person. Invest a little time and you can develop debt claims expertise the equal of any solicitor.

After statements and phone calls have failed, send a “Final Notice� headed in large red letters giving 14 days to pay, or court action to be commenced without further notice! Don’t forget to mention expenses, court fees and interest claimed in accordance with the late Payment of Commercial Debts (Interest) Act 1998, and that any judgments awarded will adversely affect future credit, tenancies or insurance. In my experience this is often enough to elicit payment.

Before moving to the court stage, ask yourself: am I dealing with a “man of straw�, or will payments be forthcoming eventually? Be patient, in extreme cases it may take time to recover fully. One recent case involved a debtor contacting his landlord years later to pay in full: he wanted a mortgage and the company would not comply until all debts had been cleared – a very satisfactory conclusion!

The Land Registry and Companies House on-line checks are extremely useful and inexpensive for ownership information. For limited companies, make sure they complied with section 351 of the Companies Act – failure to disclose company details in correspondence means you might advantageously go for the individual.

A clear and concise “statement of claim�, and “witness statement� with clearly referenced supporting evidence is then all you need to present your case. The hearings are informal and judges are usually very supportive of those who present a good case.

Get more information here: http://www.landlordzone.co.uk/small_claims_court.htm

Tom Entwistle is a property investor and editor of the rental property website – www.LandlordZONE.co.uk

This article originally appeared in Property Week, 15th December 2006.

Anyone contemplating a DIY calim is recommended to buy this excellent and inexpensive guide. Written by an experienced lawyer, it’s right up-to-date with the correct procedures and forms.