Debt Pre-Action Procotol
There are many reasons why lessees may find themselves in arrears and subsequently committing a breach of their lease. Changes in personal circumstance such as redundancy, being too ill to work, being on a low/fixed income or having no savings to fall back on means that they may not able to pay at any particular point in time. It is therefore important that the the freehold RMC or the managing agent is advised of any difficulties as soon as possible, particularly if the situation is likely to be ongoing for longer than first thought. Regular updates should be provided and if the problem is ill health preventing a return to work, then sick certificates and GP letters should also be submitted as should copies of any hospital admittance and release forms.
Other reasons could be:
- Leaseholders are disputing the service charges on grounds of validity, reasonableness or legality;
- When a leaseholder dies and the estate is being handled by family;
- Accounting failures such as where the incoming payments may have been posted to the incorrect leaseholder account;
- Demands incorrectly addressed;
- New leaseholders (or their solicitors) failing to serve the required notices stated by the lease during the conveyancing process;
- It could even be a simple oversight.
Whatever the reason, the new Debt Protocol now has to be adhered to before any Court action is taken. It came into effect on 1st October 2017 but it has not been specifically written for leaseholders in arrears, rather that they have been included within it. The full protocol can be found here.
There are distinct similarities between this and the basic criteria under the Civil Procedure Rules (CPR) Practice Direction Pre-action Conduct but the protocol has expanded on this with the aim being to encourage early communication between the parties and avoid court proceedings either by a) agreeing a debt repayment plan or b) referring the matter to some form of Alternative Dispute Resolution.
A Letter of Claim is now required to be sent to the defaulting leaseholder containing the following information:
- The name of the lessee;
- The debt amount;
- Period of claim;
- Accruing interest (if any);
- A copy of the most recent statement of account;
- Details of any agreements made with the lessee in relation to previously agreed payment plans and why these are no longer acceptable;
- The lessee’s correspondence and email addresses;
- Details of how the debt can be paid;
- The address to be used for the completed Reply Form.
- A copy of the Information Sheet;
- The Reply Form;
- A financial statement form, i.e. the Income and Expenditure Form enclosed with the Letter of Claim.
So what has changed?
Lessees now have 30 days to respond to the Letter of Claim before court proceedings are issued. Previously 14 days was considered acceptable from the first Letter Before Action sent by a solicitor and a further 14 days should a second letter need to be sent. The lessee will also be allowed more time if they want to take their own independent legal advice. If the lessee requires time to repay the debt, both parties should aim to agree either agree to an instalment repayment plan, based on the lessee’s income and expenditure but if the landlord cannot agree or is not prepared to accept a lessee’s proposed repayment plan, it must explain reasons for its refusal in writing.
If the parties agree a debt repayment plan, and the lessee starts but then stops complying with it, before issuing court proceedings, the landlord must send an updated Letter of Claim and comply with the Debt Protocol all over again with the lessee having another 30 days in which to respond to the second Letter of Claim. Previously 14 days was considered sufficient.
If a lessee has sent a Reply Form to the landlord but no debt repayment plan was agreed between the parties, then the landlord should give the lessee at least 14 days’ notice of its intention to issue court proceedings. Non-compliance with the Debt Protocol may be taken into account by the court when giving directions for the management of the proceedings and/or making orders for costs.