What action can a Landlord take against defaulting Tenants?
Landlords are increasingly frustrated with tenants who simply will not pay their rent and arrears. Whilst some tenants are genuinely suffering, there is a feeling that some are using Chancellor Sunak’s moratorium on forfeiture as a budget management tool.
The suspension of forfeiture, a vital weapon in any landlord’s arsenal, is due to end in March 2022 (see “UK Government issues policy statement on Commercial Rent Debts“); Commercial Rent Arrears Recovery (the “CRAR”) which is the mandatory form of distress introduced by statute should also end at the same time.
The ban on the presentation of a winding up petition for rent arrears, again, a cheap and useful tool against delinquent tenants, ends at the end of September. The Government has announced some changes to this, effective from 1 October 2021.
Notwithstanding these measures, landlords can exert real pressure on recalcitrant tenants using the county court (or high court) judgment order. Whilst this neither delivers up vacant possession, nor allows the landlord to sequester goods to sell against rent arrears, it operates as a meaningful threat.
If a landlord has succeeded in proving a tenant’s rent arrears before a judge and has obtained judgment, then the defendant will become known as the judgment debtor. Whether the judgment debtor is an individual or a company, this will have a negative effect on credit ratings, making finance either more expensive or more difficult to obtain. On top of this, there will be the reputational damage, as judgment debts are a matter of public record.
It is the responsibility of the landlord – now known as the judgment creditor – to enforce the judgment. Enforcement is governed by the Civil Procedure Rules and includes taking control of goods and third party debt orders. These have not been affected by COVID-19 legislation.
In our experience, for tenants who chose not to pay, the letter before action (the “LBA”) – the first step towards bringing a claim for rent arrears – acts as a trigger to engage with their liabilities. The LBA is particularly effective when accompanied by draft particulars of claim.
If the tenant still fails to engage, then the claim form may be issued. The tenant will then have a period of time to file a defence, and if it fails to do this, an application for judgment in default may be applied for. If the tenant does file a defence, and the defence shows the cause of action, the landlord may then apply for summary judgment. Once judgment in default, or summary judgment is granted, then the landlord may proceed to enforcement.
The civil justice system has been severely impacted by COVID-19, so we have been experiencing long delays in all steps of the litigation process. It is therefore advisable for landlords to consider timeous action now to ensure that they are not at the back of the line as the economy opens up.
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