The Service Charge Recovery Procedure
20th April 2023
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20th April 2023
Whilst most landlords, RMC and RTM Directors and professional managing agents will have the need to appoint lawyers to take action to enforce recovery of service charges at some point in time, the process itself leading to recovery of payment might be somewhat of a mystery to some. This Legal Update therefore looks at the basic legal process for recovery of arrears of service charge from a defaulting leaseholder and potentially leading to possession (or forfeiture) of the errant owner’s property.
If a leaseholder has failed to pay the service charges due under the terms of the lease, the landlord or management company (“the Claimant”) can apply to either the County Court or the First Tier Tribunal for a determination that the debt owed is payable to them. In the Tribunal, the process will lead to a determination as to the sum due and in the County Court the process will also lead to a money judgment (CCJ) being made against the defaulting owner (“the Defendant”) requiring the Defendant to pay the debt to the Claimant.
If, following either of the above the Defendant fails to pay the sum owed and determined by the Court or Tribunal the Claimant can take further action to enforce the judgment debt.
Where the debt relates to a lease or is a rent charge (albeit that you don’t need a CCJ to pursue a rentcharge), those enforcement steps will most often be toward possession of the property (forfeiture of the lease or possession under a rent charge). Where forfeiture is not an enforcement option available to the Claimant then there are various options for enforcing a money judgment and we have detailed some of those in our Legal Update here. Note that, in those circumstances where forfeiture is not available and the determination has been made by the Tribunal as opposed to the Court, a further claim will be required by the Claimant to obtain a CCJ which can be enforced to recover the sums due (e.g. the Tribunal determination is not enforceable in the same way as a Court order - see here).
We have set out below a step by step guide of the basic Court/legal process for recovery of a service charge debt payable under a lease. There are of course exceptions to the rule, but in most cases the process will follow as outlined below. There may be different or additional steps involved where the debt is pursued in the Tribunal, which are not covered in this Legal Update.
The guide above sets out the basic process for recovery of a service charge debts where the matter is undefended and/or there are no disputed raised by the Defendant. Where the Defendant files a Defence or Counterclaim in response to a claim for unpaid service charges, the Court or Tribunal will make a Directions order requiring both parties to undertake certain steps (filing of evidence etc.) ahead of a final hearing of the dispute (unless the parties can reach an agreement/settlement beforehand). Such Directions can differ depending, amongst other things, on the value in dispute, and so are outside the scope of this Legal Update.
In the vast majority of cases where a landlord, RMC or RTM company is owed service charges by a defaulting leaseholder, the legal process will be straight forward and payment will be recovered either from the leaseholder or their mortgage lender at some stage in the legal process. However, landlords, RMCs and RTM companies are advised to take specialist legal advice where there is a need to take such action, to ensure the correct process is followed and no delays or wasted costs will arise by any procedural errors.
As a specialist property litigation firm, we have considerable experience in recovery of unpaid charges and are well versed with the necessary legal processes and sort of hurdles faced by clients in obtaining payment, and in recovering the cost of that action.
If you have any queries in relation to this week’s Legal Update or would like to discuss possible legal action to recover any unpaid service charges, please contact a member of the team on 01435 897297 or firstname.lastname@example.org.
This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above. The 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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