As part and parcel of effective debt recovery, this article covers the situation when leaseholders are not paying and the steps you need to address if you need to take the matter further.
If you deal with credit control, you may have a template for reminder letters. If these do not prompt payment then before you issue proceedings you need to make sure that you have complied with the relevant pre-action protocol. These pre-action protocols are intended as ‘good practice’ by the courts and the courts are keen that they are used and that they are shown to be used.
The introduction of pre-action protocols came about at the same time that the civil court procedure was overhauled in 1999. Essentially the new system was designed to encourage early sharing of information and to encourage the parties to consider negotiation or mediation at an early stage to try and avoid the issue of claims.
The pre-action protocol sets out what needs to be done before issuing a claim. The type of protocol you use will depend upon the claim you are bringing, although there is no specific template for service charge arrears but there is detailed guidance on pre-action conduct which should be used. Full details can be found on the Ministry of Justice website.
What needs to be borne in mind is that the guidance describes the conduct the court will normally expect of the prospective parties prior to the start of proceedings. If it is necessary to issue a claim, a court can, and usually will, take into account the extent of the parties’ compliance with the relevant pre-action protocol.
There are two types of guidance which are aimed at different type of claimant. The second, whom we discuss here, is applicable where the claimant is a business and the defendant is an individual.
So before you do issue, these are the steps you need to take:
Firstly you need to send a full letter before action to the leaseholder setting out certain specific points:
- Your client’s full name (or one on whose behalf you are acting).
- What property you are writing about.
- The amount in issue and also a summary showing how that is broken down.
- On what basis you are claiming that amount (i.e. why under the lease is it due).
- A clear summary of the facts on which the claim is based (e.g. that you have not received payment despite requests for the same).
- Details of any funding arrangements that the claimant may have entered into. This is unlikely to be of relevance if you are dealing with the matter on the client’s behalf. It is more relevant for larger claims if a conditional fee agreement has been entered into.
You should also set out:
- Any documents on which you intend to rely – the most obvious of this is the lease.
- Any form of alternative dispute resolution, such as mediation, which the claimant considers most suitable and invite the defendant to agree to this.
- State the date by which the claimant considers it reasonable for full response to be provided by the defendant – 14 days is usually used.
- Unless you know that the defendant is legally represented you need to draw their attention to possible sanctions for failure to comply with the practice direction AND inform him that ignoring the letter could lead you to start proceedings.
- Finally, and what has been a recent introduction is that you are required to set out organisations which can assist in providing advice in relation to debt claims.
Once you have sent that letter, the defendant then has the given time to respond. If he cannot respond within 14 days, then he needs to send an acknowledgement within that time saying when he will be able to respond (and why) and if there is any further information he may need. An example might be copies of the demands that have been sent or copies of financial statements or accounts that he claims not to have seen or received.
One point to bear in mind is that the defendant is entitled to seek legal advice and if this is the case, the defendant needs to say so, from whom that advice is being received and when the defendant will have received that advice and be in a position to respond. The court suggests that the defendant is allowed up to 14 days to seek legal advice.
This is also the same if the defendant wishes to seek debt advice. However it is important to bear in mind that the court realises that such allowances could be abused and provides that you do not need to allow the defendant time to seek debt advice if you know that the defendant has already received such advice and his circumstances have not changed significantly or he has previously asked for time to seek such advice but has not done so.
Defendant’s full response
The full response should set out whether the claim is accepted in full or in part or that the claim is denied.
Unless the whole claim is accepted the response should:
- Give reasons why the claim is not accepted, identifying which facts and which parts of the claim (if any) are accepted, which are disputed and the basis for that dispute;
- State whether the defendant intends to make a counterclaim and, if so, provide information equivalent to a letter of claim. An example here would be where the leaseholder claims to have undertaken work on the communal areas for which he believes he should be reimbursed (or set off from the amount claimed). Another example is where the leaseholder claims that because of a fault in the property, perhaps a leak, he has suffered loss which he is going to claim back;
- State whether he agrees to the proposals for alternative dispute resolution and, if not, why not;
- List the essential documents on which he intends to reply;
- Ask for copies of documents not in his possession.
There may be instances when the defendant does not respond within the time limit either he or the claimant has given. If so you can go ahead and issue a claim.
Once you have this response, if documents have been requested then you need to provide them as soon as possible or say why they will not be provided. If there is a counterclaim, you should provide a full response equivalent to the defendant’s full response.
The idea then is that the parties will then have a genuine opportunity to resolve the matter without needing to start proceedings. At least that is the theory but in practice, particularly dealing with litigants in person or leaseholders who do not instruct solicitors, there may be a reluctance to negotiate as it may be seen as a sign of weakness.
It has been mentioned above why the courts want the parties to put in this ground work and they back it up with sanctions if you don’t. They take into account the extent of the parties’ compliance when giving directions for management of the claim and when making orders about who should pay costs.
Examples of non-compliance would be:
- Not providing sufficient information to enable the other party to understand the issue. An example might be providing only a global outstanding figure rather than breaking it down, perhaps by providing a statement of account. Another example might be where the leaseholder has made some payments and cannot understand the period of time outstanding;
- Not acted within a time limit set out or not acting within a reasonable period; and
- Not disclosed requested documents without good reason. An example again would be where the leaseholder requests seeing a copy of his lease.
Sanctions usually take the form of costs sanctions. For example ordering that the party at fault pays the costs or part of the costs of the other party or that the claimant, if that is the party at fault, is not entitled to interest.