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Further to comments posted requesting a guide to recovering debts from tenants I enclose a series of articles I have written to assist with closing this knowledge gap. Here's the first instalment.
Taking someone to court is the least preferred activity of any Landlord. Usually reasoning with tenants to pay their rent or to clean the property does the trick but sometimes it’s a necessary evil to show we’re not a toothless tiger. It’s one of the core skill-sets that all Landlords should be familiar with so they understand the options available to them.
I’ll share the story of a recent trip to court whereby my tenant lost and had to make regular payments to me and is also likely to have a monthly deduction made from her payslip before she sees any money. In my experience if you set the scene correctly you can nearly always get paid. It takes time, but you’ll get what you’re owed if you set things up correctly from the start. Also remember you must abide with the doctrine of ‘clean hands’. As an Accredited Landlord I do everything properly and by the book. My hands are clean. If you don’t, don’t expect the courts to help you – your hands are dirty and they will not help. Gas Safety Certificates, Deposit Protection, Furniture Fire Safety etc. must be in order.
Let me also add that in my ten years as a Landlord I can count the tenants I’ve had to take to court on one hand. The majority of my tenants are good and deliver on their promises. The court system is here for those that don’t.
One successful Landlord friend of mine says if you’ve taken someone to court you’ve failed as a Landlord. Another said that you can only look in one direction, you can’t keep moving forward when you’re looking backwards. By this they mean that court is the last resort and taking most people flowers and sitting with them over a cup of tea can work wonders. The other felt you should ignore non payers and keep building your business instead of allowing court action to distract you. Whatever you think, one fact remains: the only people that win in court are the solicitors as they can claim their costs back in full. You and I cannot. If you can, mediate don’t litigate.
Case study – House share tenant
My tenant rented a room in a house-share and decided she wanted to move out. She left the property dirty and told me in no uncertain terms that she wouldn’t be picking up other peoples mess, denying any of it as hers. I tried reasoning with her without success and raised this with her on her move out day. She told me to get a cleaner and send her the bill. It was a throwaway comment and I wasn’t surprised when she ignored my payment requests. She assured me in front of the other house-mates that she wouldn’t be cleaning it. It was setting a bad precedent to my other tenants.
I had the property professionally cleaned, photocopied the invoice and sent her the bill. She ignored my messages. I tried a few more times and realised I was getting nowhere.
Before you decide to sue anyone you need to determine whether they are able to pay. Do they have savings? Do they have a house? Do they have a full time job? If they are not on benefits and have a full time job you have a good chance of being paid. Did you take a guarantor?
If they don’t have any income you’re wasting your time and money – you can tag them with a County Court Judgement (CCJ) online from £25 to brand them a credit risk to others but even that might be throwing good money after bad. Registering them on Landlordreferencing.co.uk is the best form of defence. You cannot search satisfied CCJs so a lifestyle reference on this site can cover the gap left where the legal system fails, saving you taking on a non paying tenant.
Next you need to determine their address. Your tenant application form is the key document for this and will tell you their likely address and if not you can use the other information to trace them. For £65 you can use findermonkey.co.uk to trace them (no find no fee) who offer a 10% discount for National Landlord Association (NLA) members. Tracing fees may or may not be claimable depending in the wording of your tenancy agreement. I have developed other methods to do this for less than £10.
Now we have their address* and determined they are worth pursuing, we need to write to them. This is known as a letter before action. It takes a specific format and is a vital step to secure a CCJ. All letters to your ex tenant must be sent as stated in your agreement. Mine says they are deemed served when posted by first class post. I ALWAYS do this by dropping the letter into the Post Office and ask for a certificate of posting to prove this was sent. No proof means you’re making it easy for your tenant to wriggle out of a CCJ. Keep the receipt!
In the letter you write, state that you have tried to contact them on a number of occasions without success, that they owe you money and that it must be paid within 14 days of this letter to avoid court action, and that the costs of which will be added to the balance. You need to give them a breakdown and evidence of why they owe the money. In my case I gave them a letter recalling our conversation, tenancy agreement with cleaning clauses highlighted, the check out inspection findings and an invoice from the cleaning company. You should also remind them how to pay. You don’t need to include everything – just enough to reassure them they need to pay.
Next you wait 14 days and if you haven’t received the money you can commence legal proceedings. You register on moneyclaim.gov.uk (the online version of the small claims court) sign in and type a summary of your case.
Insert your and their address and the amount you’re suing for. Don’t forget to add everything reasonable to the amount that you can think of here, the Judge may whittle it down. Calculate interest. Click submit. Pay the court fee with your credit card. Now wait. If you did this before 10am and the court is open, it is issued same day, otherwise the date of issue is the next day.
After 5 days the case is considered served (date of service). The tenant now has a further 14 days to acknowledge the claim. The tenant will either pay at this stage as they know you’re serious or they’ll do one of two other options – defend or ignore.
Ignore is my favourite – it’s very common and results in judgement in your favour due to the tenants inaction, also known as judgement in default. You still need to be on the ball here and log into the system on the relevant date (day 15) and click ‘request default judgement.’ Do this another day or more late and you’re making it easier for your tenant to defend. Set a reminder on your phone and if they haven’t responded within the 14 days request judgment.
Next the Judge issues the County Court Judgement by default that the tenant must pay you the amount you requested within 28 days. Sometimes you get paid at this point (if they do they avoid the CCJ). Otherwise you phone the court and tell them the money is outstanding. They then register a CCJ against your tenant, damaging their credit.
If they haven’t paid, you can choose your remedy to recover the money they owe you. You can refer back to your Application Form (remember I told you this was useful) this allows you to decide if you’ll get a third party debt order against the bank details on the form to recover funds from the account. You determine the timings for this from the bank statements and payslips you have so the money comes out on their pay-day. You could request an attachment of earnings – an automatic deduction from their payslip every month by their employer (so they also learn of their bad behaviour). You could snatch their assets (warrant of execution) – car? TV? Possessions? You could attach it to their house (charging order) so they cannot sell their house without paying you first.
If you don’t have an application form, all is not lost. You can request an order to obtain information which orders them to appear in court to answer questions from the court and also from you if you wish to get them to reveal any assets, income or bank accounts they may have. This will unnerve them and either make them pay to avoid a court appearance or give direction to your debt recovery.
The costs associated with each method differ but are added to the total debt owed by the tenant. If it’s £500 or more you can use the High Court Sheriffs who act without warning and have a high recovery rate. My best strategy is the attachment of earnings route and has resulted in full payment. They were given an opportunity to pay an agreed payment schedule to allow them to hide this from their boss (they were a guarantor) and were true to their word. Had they missed a single payment the attachment of earnings would have been applied to their payslip.
My other tenants played up a little when they knew my ex tenant hadn’t cleaned the house (one bad apple spoils the barrel) but the news filtered back from her when I won and she lost. They realised that, like a shop that doesn’t prosecute shoplifters, rules without consequences are meaningless. After the judgement and in her case, a bailiff visit, they respected the rules and chose to stick to them.
My tenant paid me every month and continues to do so until the debt is settled. She had to pay the cleaning bill and her costs escalated to far more than the initial debt. She also now has a CCJ as she chose not to follow our legally binding agreement. Now other Landlords and creditors know to avoid her. She has her own house and doesn’t need to rent, but this CCJ will live on her credit file for six years. Had she paid within 28 days it would have disappeared.
I was disappointed more by this tenants behaviour than anything else because she was a similar age to me; one of my most mature (or so I thought) house share tenants. It goes with the territory with a house share that you have to clean up other peoples mess as well as your own and the “I don’t use the oven or kitchen” excuses don’t wash with me. The facilities were available to you and were clean when you moved in and if you ask the house-mates they very likely will help. These were excuses I’d have expected from a teenager not an adult. I had hoped people of a similar age would be mature – however I have learned that maturity and age do not always go hand in hand.
This is an abridged insight into taking your tenant to court, when all else fails. I’ve prepared cases for other Landlords who have ‘won’ in court, taken clampers, even neighbours who’s cannabis factory set fire to my house and used the court system to regain possession of my property. I’m not a solicitor and don’t give legal advice, just help to assist with understanding this chapter of knowledge essential to all business owners. Please do your own research into this topic before you act, you don’t need to use a solicitor. In the land of the blind the one eyed man is king, preparation is key and getting an understanding of the legal system will stand you in good stead.
When they defend…
*cant find your tenants new address? No problem. You can still use their last known address providing you can demonstrate (this means written evidence) that you have tried to determine their address under Rule 6 of the Civil Procedure Rules (CPR). ©PhilWheeler2014
Phil Wheeler is a Property Consultant and Midland Accredited Landlord with 10 years experience. He has different types of property and is always learning new ways to be more effective. He is not legally trained however was top of his class at University in Intellectual Property Law as part of his Computer Studies Degree. Law is one of his fascinations and he digests many books on the topic.
read more articles on my blog at evillandlord.co.uk
I have been through the whole useless process to recover massive rental arrears etc.
I have found the whole exercise pointless even though I assisted another council to recover monies from my fraudster tenant.
It is far easier to just obtain RGI and dispense with any recovery process.
Councils won't share data with County Courts and it is just a wild goose chase trying to track the wrongun tenants down.
RGI solves the problem of rent arrears and hopefully insurance covers theft and damage; though there would probably be a policy excess.
That is why I take 2 months rent as deposit 1 month's rent in advance and a RGI policy.
I have found that this is the only real way to recover losses; by effectively insuring against them via a large deposit and RGI.
This means I can only take on tenants who will pass a RGI check.
This limits my market.
My choice I know; but because the civil recovery processes are so useless I am forced to operate like I do.
I just cannot risk non-rent payment and lengthy eviction processes; I don't have the resources!
The one thing that would change my operandus modi would be eviction 14 days after the first missed rent payment with police assistance if necessary.
Then I would take anyone on!
Thanks for the reply, the opportunity we have (strong rental demand) with the rental market exists because the eviction process is slow and unpredictable. If we could get non paying tenants out as quickly as we wished the pension funds would be leading the market. We wouldn't get a look in.
I agree that Rent Guarantee Insurance (RGI) is one solution but in my experience some providers take one months rent as an excess, only guarantee vacant possession so won't chase the tenant for other incurred costs and don't cover the first ninety days etc. It's not an ideal solution especially if your taking tenants on Local Housing Allowance etc. I can do much of this through proper referencing, guarantors and £25 towards a moneyclaim I know has every chance of success. That way I'm spending the collective premiums that are not needed on insurance that isn't claimed on, on the non paying tenants.
I have listened to your message on RGI and have taken it on board and do RGI some of my tenants as a result, for the first six months of a tenancy only, as I feel this is where I get the best understanding of their behaviour within this time. If I'm still unsure I renew. I'm also unaware of RGI for my house shares (HMOs) so don't think it can protect all my tenancies.
Could you share some of your experience of your attempt to recover rent arrears so we have a balanced view? Perhaps I've been very lucky with my experiences or could benefit from what you found?
Smashing, very informative thank you Phil ..
Paul Routledge CEO
Tenant Referencing UK.Com
The eviction point and pension funds; or any other investment institution are NOT something I had particularly considered!!
But you make an extremely valid point.
Essentially it seems be careful what you wish for as with timely eviction then you the little man will be stomped all over by the big pension funds etc. buying up everything.
Will this still be the case now that the annuity market has effectively been destroyed by GO.
Hmm! perhaps on reflection we PRS LL should stop shouting about timely eviction; we could shout ourselves out of existence!!!?
Perhaps I will now pipe down about timely eviction and just soldier on with my RGI; 2 months deposit and 1 months rent in advance!!!!
I don't want to be financed out of existence by the big boys.
After all timely eviction would be a somewhat hollow victory if I am priced out of business by the big boys!!???
I think I will keep my head down in future!!?
I'll try and respond to the experiences I have faced re recovery; but it would be a lengthy post, will do it some time soon!
I have had a few tenants over the years make payment arrangements with me on outstanding rent and one actually paid me in full over 3 years. It is those very people that you know are worth their weight in gold as even though they fall into debt they have the decency to pay their debts over time.
I must admit since using this site and making sure my tenants know that I don’t have to take them to court to tell other landlords that they are knockers has certainly made the ones that though I was an easy target think again.
That was really interesting, and helpful, I am going to pass on to my old business partner - thanks.
Like Londonlandlord, I've gone to court a few times, mainly when I was a letting agent. On the whole most defaulters dont bother paying, most landlords end up writing it off I am afraid. Those done via the RGI that Heritage is currently using, well, I dont know as landlord got their money, we got our fees, job done. With my own properties, I have to admit that my hubby did let one off the hook, which ended up causing us £10K in lost rent and damages. The bar steward disappeared without a trace. I will admit this was a loooooong time ago, when my lettings and landlording career was in its infancy.. Big lessons learned, but all I can say is that my cup is half full in that we were able to write the losses off against our tax bill.
However, would anyone be interested to hear about when I took a landlord to court and won? We were instructed to let a property, which we duly did to three sharers. All went well, they were referenced, rent and deposit paid and move in date booked in diary, along with inventory prepared, gas certificate etc done, keys cut etc, etc. They had agreed to move in on a Friday, and on the Thursday I went to London with a colleague to attend the GLM conference. While on the train, our administrator called us to say that this landlord had pulled out as he had sold the house. I then called him, and he confirmed it and told me it was sold via ourselves, and as such he felt he did not owe us any money, plus 'he did not sign anything, so he is not bound by anything'. I remember speaking to three very, very, very angry tenants and wont forget that chat in a hurry, and to be fair, I did feel sorry for them, as they had nowhere else to go.
Getting back to work, I wrote to the landlord, who had thankfully signed our terms of business. He ignored it, I wrote again, etc. He ignored it, etc. I ended up sending him a letter before action which was ignored. I then initiated a claim on line via http://www.moneyclaimonline.co.uk. we went to court, he did not turn up, so we won our case and were awarded our lost fees, plus the referencing costs incurred by the tenants, as we handed these, plus the admin fee back to the tenants, as most decent letting agents do when a tenancy fails to proceed for reasons not of their fault.
We waited 28 days and he did not pay, so we enforced the judgement upon him. He still did not pay. We then instructed a bailiff to turn up and collect the money. By this time his sale had gone through, so we knew he had the cash. Apparently he answered the door to the bailiff with a cheque already made out, swore at the bailiff and slammed the door. The cheque did clear, and was for considerably more than our original invoice as it inclluded all the court costs. To this day I still dont know why he acted like this.
Havent needed to do it since, as we tightened our operating processes after that, but it was a lesson learned I can say.
Very interesting read Phil. The new court fees are not helping with claims against tenants
As you know they will never change the eviction laws to make it easier in the same way they will never embrace LRS because they do not want a homeless problem that will just land on their doorstep rather than ours.
RGI, excesses and cheap 6 month policies are a nightmare and that is why we are going to offer the Waitrose, Tescos & Sainsburys versions of the market rather than offering LL and LA’s the pound shop version which is about all you will get back if you claim.
I do not use 6 month policies as very few tenants fall into arrears in the fixed term and most falter as they go into statutory periodic so when you need to claim you have no insurance in place and also the insurers do not pay for the first month because that is paid up front and then a month’s deposit and then a month’s excess you end up with 3 months cover out of 6 .. and I am not a believer in spoiling the ship for a ha’porth of tar and and a twelve month policy can be rolled over year on year keeping you safe all the time. .
Paul Routledge CEO
Tenant Referencing UK.Com
Thank you for all your comments, it shows other Landlords that they needn't let debtors off the hook when it comes to recovering arrears. If they have a detailed application form and have taken steps to reference them properly then they too like you and me have a good chance of recovery and help to instil in responsible tenants the need to fulfil their obligations.
Its also nice to have a balanced discussion with Cathy's defendant being a Landlord, not a tenant, that had shown himself to be ignorant of his obligations. Moneyclaim is a helpful tool to utilise whether your Agent, Landlord or tenant.
The inflated court fees, shutting of courts and desks closing at 2pm all don't help but at least the fees are recoverable from your tenant.
I assume from reading Paul's other posts that Paul Barrett looks at tenants with the thought in the back of his head whether they are a good RGI candidate or not. The same needs to be true for me when I'm picking between possible candidates if they say they have a guarantor then they enter the realms of being a preferred tenant. If they are already a homeowner/have a profession likely to be stable and long term the same applies to the hierarchy with guarantors sitting at the top.
Paul R - I never say never, who knows what hair brained idea the government have for the PRS! I was in Spain this week and studied the 11 month short term vs the 5 year long term tenancies they have out there.
Also although councils won't embrace your website presently I think that could change. Your exposure through membership of this site shows there is a need for your service - a reliable guide to choosing tenants that meet their obligations. Modern landlords aren't cash rich they are at the mercy of the banks.
Good tip on the 12 month RGI agreement - I've PM'd you a message about an idea I have for you.
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