We have been asked by a number of agents to update the advice we set out in our articles from March (see here and here), June (see here) and September (see here) of 2020 in relation to Rent and Service Charge recovery for long leases and estate charges throughout this Covid-19 period and the newly imposed lockdown.

We understand that many of the subscribers to our Legal Updates have provided our earlier advices on this subject to both their landlord clients and to property owners, alongside reminders for unpaid charges, as a means of providing them with clarity on the correct position and, importantly, the requirement to pay notwithstanding the current pandemic or lockdown.

So what is the position with demands for Service/Estate Charges and Ground Rent?

As we enter the fourth quarter of restrictions on the ability to move around and, for some, work, it is more important that those of you managing developments, be that as landlords, resident management companies or right to management companies, are able to complete their management obligations for the benefit of the property owners and residents. That means that property owners and residents need to continue to pay the rents and service charges as they fall due.

Fake News!

As we and many others have reported regularly since March 2020, there had been considerable misunderstanding by property owners relating to continuing liability for service charges and rent. Despite the protection afforded by the Government to residential tenants of short term tenancies and to tenants of commercial property, no such protection was, or has been, provided to those who pay ground rent or service/estate charges for residential property. Accordingly, it is ‘business as usual’ for those property owners and thus charges demanded must be paid in accordance with the agreement under which they fall due.

We were also hearing from leaseholders who had formed the entirely incorrect belief that the Courts and Tribunals were either closed or not progressing claims for unpaid charges. As our previous articles confirmed, the Courts and the First Tier and Upper Tribunals have remained open and are very much progressing cases.

Whilst it is fair to say that there are some delays in the process, those are relatively minor, the process is still working very well and we continue to progress, conclude claims and conduct trials (virtually mainly, but also in person) and therefore charges that are unpaid can and should be enforced.

Is there an issue with obtaining payment?

Back in May 2020 Nigel Glen, CEO of the Association of Residential Managing Agents (“ARMA”), reported that nationally there had not been a significant increase in the amount of service charge arrears reported by its professional membership (around 5% in all), although that did fluctuate regionally with, at the time, those agents in the north of the country reporting higher arrears than those in the south.

From our own discussions with agents, landlords and management companies across the country over the last 9 months, we are hearing much the same with most property owners being proactive and pragmatic in agreeing reasonable instalment plans to ensure that the service charges are continued to be paid. There are of course exceptions such as those who have not paid either through circumstances, and thus an inability to pay, or misinterpretation of the correct and legal position on the requirement to pay.

So what to do with arrears?

The answer is straightforward and is unchanged from that which we have set out in our various articles over the last 9 months.

• Rent, Service and Estate Charges should be demanded in the usual way pursuant to the lease or agreement relating to the property.

• Where payment is not forthcoming in accordance with that demand, your usual debt recovery processes should be run without delay.

• If the property owner is responsive and you accept that there is a genuine inability to make full payment then, if appropriate and possible, seek to settle an agreement for instalments with the defaulting owner.

• In default of a practical arrangement (be wary of agreeing instalment plans that go beyond the financial year for the current arrears) then the landlord/management company’s instructions should be sought to enforce any outstanding sums.

Note though, that enforcement need not involve significant costs, County Court Judgments or Trials in either the Court or Tribunal and can be resolved promptly as most property owners will own their property subject to a mortgage. In such circumstances, and with or without the assistance of the defaulting property owner, payment can often be obtained from the mortgagee on the property owner’s behalf. If the property owner who cannot pay (at all or at a reasonable rate) works with you or those appointed to enforce on your/your client’s behalf, then payment can be extracted from a mortgagee both quickly and with minimal cost.

We have and continue to recover significant sums on a weekly basis via this route.

Conclusion

There is no reason for Rents or Service and Estate Charges to be unpaid and there is nothing to prevent recovery where, for whatever reason, those charges continue to be unpaid. If a reasonable and practical arrangement cannot be made with the defaulting owner then enforcement steps can and absolutely should be taken in almost every case.

If you require advice on any specific case then do contact us or your advisers or your client’s advisers/enforcement specialists.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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