Tom Entwistle explains how landlords of residential and commercial properties can proceed when faced with outstanding debts at the end of or even during a tenancy.
The article discusses the process of using the Small Claims Court in the UK to recover outstanding debts, particularly in the context of landlord-tenant relationships. Tom Entwistle, based on his own court experiences, emphasizes the importance of pursuing bad debtors, even if it's to prevent tenants from repeating the behaviour with another landlord. The Small Claims Court is presented as a relatively hassle-free option for legal action by those without legal training involving debts up to £10,000, and individuals can represent themselves as litigants in person.
Debts are the dreaded outcome of some tenancies and many bad tenants get away with it. They leave owing a great deal of money. And landlords fail to pursue these debts.
There are several reasons for this: they are so relieved to get possession of the property back they simply forget about the debt; they are worried about the legal costs of going to court; they don’t have the knowledge to do it themselves; they know that the tenants can’t pay the off the debt; or they simply can’t be bothered.
My contention is that bad debtors should be pursued, even if it’s simply to stop them doing the same to another landlord. They will get a county court judgement (ccj) against them and there’s always the chance that some time in the future, when they have reformed, they may want to get a mortgage for example, which could prompt them to clear the debt and their name – it does happen. They key thing is, they will be punished because they will find it difficult to secure another tenancy.
As the cost of living crisis continues there’s no doubt that debts will increase, often not the fault of the tenant: But we’re not talking about these people here. We’re talking about serial bad debtors, those who deliberately play the system, as we well know. We also know that the courts are overloaded, so currently there is usually a long wait to get justice.
The small claims (county) court is a relatively hassle free way to take legal action for debts up to £10,000 against a firm or individual in the UK. And this can be done cheaply by self representing as an LIP - a litigant in person.
The small claims court system is, after all, designed for private individuals to take action. But you must be confident that you have a good case: you need good documentary evidence to support your claim. It’s a good idea that a defendant can afford to pay you - before you start the process. But even when they can’t, a really bad tenant deserves a county court judgement (CCJ).
You will need to pay court fees (a few hundred pounds) which some see as throwing good money after bad. I don’t. It has to be weighed against obtaining a result. You will probably get your costs awarded if you win, but that's never guaranteed.
Do not rely totally on these guidelines, which apply primarily to England and Wales. They are not definitive statements of the law. Only a judge can decide the rules. Before taking action or not, always do your own research and seek professional advice with the full facts of your case and all documents to hand.
From April 2013 the limit for a Small Claim was increased from £5,000 to £10,000. Landlords, letting agents, businesses in general and private individuals often have reason to resort to the Small Claims Court for smaller debts.
The small claims system has several advantages in that the process can be handled totally by the lay person, the litigant in person. You may seek the services of a solicitor to help you put your case together and represent you in court, but often the legal costs involved are out of proportion to the debt in question.
If you DIY a small claim, all that's involved is the court fee (a few hundred pounds) and your time, though you do need to develop some knowledge of the process first.
Anyone considering making a legal claim in England & Wales can start the process off through the government website: Money Claim Online
The small claims process is designed for the lay person to bring a civil action for small amounts without incurring expensive legal costs. If you do use a solicitor, legal costs will not be awarded in the small claims track, though they would be for large amounts in what are known as the Fast Track or Multi-Track.
Get your act together and you will find the small claims system is a user friendly and cost effective way of collecting debts: Rent arrears, service charge disputes, deposit disputes, disrepair and dilapidations claims, plus general debts and consumer disputes are all common reasons why small-scale landlords, tenants, letting agents, businesses and individuals might consider using the small claims court.
LIPs will have to present their own case, so if you've always fancied yourself as a bit of a “Philadelphia Lawyer”, here's your chance! Claims can be started off on-line using the link above and guidance can be found using the links to the Part 27a of the Civil Procedure Rules, Practice Direction - Small Claims Track.
In England & Wales it's the county courts that deal with civil disputes, as opposed to criminal cases, which are dealt with by magistrates and crown courts. The county court is often situated in the same building or near the magistrates court, and administrative staff are there to advise on procedural matters, but they will not advise on legal matters.
However, a lot of the small town courts have been closed during the austerity cuts over recent years, so you may need to travel to find one. The county courts have district judges who are appointed by the Lord Chancellor from the ranks of solicitors with at least 7 years experience.
It is these judges who hear the small claims cases and I have found they are generally sympathetic to the LIP providing you go about things properly prepared.
There are 3 routes called tracks that a judge can allocate your case to:
- The small-claims track – for less complicated claims with a value of up to £10,000, although there are some exceptions
- The fast track – for claims with a value of between £10,000 and £25,000
- The multi-track – for very complicated claims with a value of £25,000 or more
Guidance - EX306 is for the small claims track and guidance EX305 is for the fast track and multi-track.
Having decided you have a valid legal claim, perhaps having taken some advice, you should always try to negotiate a settlement with the other party (defendant). Before entering into any money claim you should make sure you have followed the pre-trial protocol set out in the Civil Procedure Rules – see the link above.
These rules are designed to help you reach a settlement if possible before resorting to the courts and the judge will want to see that you have exhausted this process before going to court. Make sure that if your negotiations break down you send a “Letter before Action” (final demand for payment) giving the debtor 14 days notice to pay, before you proceed with the court process.
If you are aware of your legal position and you set out the facts clearly and concisely, preferably in writing (for use as evidence if this subsequently goes to court), you are more likely to reach an agreed settlement.
You may have to compromise and settle for less money unless there are absolutely clear breaches of contract. It may be expedient and less costly in the long run to accept a lower figure. You also need to consider that there are absolutely no guarantees as to the outcome of the case, and that the preparation for a case involves time and effort.
It's a good idea to purchase one of the inexpensive books which are available online to help you with your small claim - search Amazon for “smalls claims court”. These guides take you through step by step in none legal parlance.
You should also be aware right from the start that even if you win, and get a county county judgement against the debtor, there's no guarantee you will collect your money, though there are several methods you can use to get your money, see below.
If you are really intent on getting some money back, just remember that there’s no point in wasting time and money on a 'man (or woman) of straw' as one lawyer once told me. If there's no chance of collecting now on or in the future, then you may need to put the debt down to experience and move on – after all, debts are tax deductible.
However, don't give up easily: it's been known for debtors to approach landlords years after the case to pay-up and have a ccj removed. CCJs make it difficult for debt defendants to get tenancies, finance and insurance for years to come. So all the more reason for them to pay up.
If your debtor is a company, you need to establish its ability to pay. The directors will not be liable unless you have personal guarantees from them, and they can go into administration quite easily if your claim compromises their business, which means you may get very little of your debt when the company is wound-up.
If your debtor has moved address, you may need to use the services of a tracing agency to get their new address. You cannot sue someone unless you know where they are living. If they have gone abroad, I'm afraid you have little chance of recovery and you can get them into a UK court.
Read the guidance first and download the necessary court claims forms, or do it online. Having sent your letter before action and waiting the 14 day period, set out your “Particulars of Claim” clearly and concisely.
Remember this, a judge does not want to spend his or her life reading reading your life story. A long essay to justify how you feel about the defendant's behaviour will turn off any judge. Stick to the facts and keep your emotions out of it. If it's rent arrears, state simply, “My claim if for rent arrears of x amount.”
Gather together your documentary evidence (this is the key to success), organise it and clearly reference it attached to your particulars of claim. Proving that money has not been received (proving a negative) is tricky, I suggest you take along to court your original bank statements to show the judge if the money is paid directly into your bank.
I once had my accountant verify none payment, for a fee, but the judge said this was not necessary as he was capable of reading bank statements!
Make several copies of everything, keeping the originals for yourself to use in court and send the requisite number to the court administrators and the defendant. In some cases you may need an expert report, for example in disputes over service changes a chartered surveyor's report would be very useful. But you will only get the costs back for this if the defendant has agreed to it.
The hearings are quite informal, with a judge sometimes sitting round a table with both parties. My advice is to go smartly dressed, behave in a respectful manner to the defendant and the judge (referred to as sir or madam) and stick to the facts, with no long emotional tales, even if the defendant resorts to this.
If you win the judge will usually ask you for and estimate of the fees to-date which may be different from those at the time you applied. You can also ask for costs. The judge will then decide how much you are awarded for your costs on top of the claim amount and will usually help you calculate the total to be awarded.
Once you get the county court judgement you will need to enforce it. There are several ways of doing this:
The defendant will usually be given 14 days to pay you. If not you may have to ask the court to take steps to collect the payment. You will then have to pay extra court fees - contact your local court for details.
It might be worth finding out what the person or business can afford to pay. You can ask the court to order a debtor to attend court to provide evidence of their income or spending, and assets through bank account statements etc.
If the debtor is a company, you can ask for an officer from the company to attend court, to give details of their accounts.
Next you need to decide how you will try to collect. Your options are:
- Use the court bailiffs. You can ask the court bailiffs to collect the money. To do this you have a choice of one of the following: complete warrant of execution form which you will get from the court or on-line. The bailiff will ask the judgement debtor for payment within 7 days. If the debt is not paid, the bailiff will visit the debtor's home or business to ascertain if any property is available to be sold to pay off the debt.
- Attachment of earnings. have the money deducted from wages. You can ask the court to send an order to the person's employer. This will order the employer to deduct money in stages from the debtor's wages to pay the debt. To do this you will need to complete an Attachment of Earnings Order.
- Apply for assets or money in an account to be frozen. The court can order a bank or building society to freeze a private or business account. To do this you must complete a Third Party Debt Order. It is up to the court to decide if money from the account can be used to pay the debt.
- Apply a Charge to the debtor's land or property. You can ask the court to charge the debtor's private or company's land or property. To do this you need to complete a Charging Order. This means that if at a future date that land or property is sold, the charge must be paid before the debtor gets his or her money.
- No assets or cash – If the debtors is the proverbial “man of straw” then all you can do is play the waiting game and hope that at some time in the future your nemesis will reform and pay up!