Leaseholder Not Paying?
Do you have a difficult tenant who isn’t paying their ground rent or service charges? It’s a common frustration for freeholders – but that doesn’t mean you have to put up with it.
Some leaseholders will have legitimate reasons which make it hard for them to pay. But they are still in breach of their lease agreement – leaving you with rising arrears and a loss of income.
How to Demand Ground Rent Legally
For a leaseholder to be legally obliged to pay ground rent to you, you must demand it with an official notice. This is called the Ground Rent Demand Notice. It is set out in Section 166 of the Commonhold and Leasehold Reform Act 2002.
This notice must specify the:
- name of the leaseholder
- name and address of the freeholder
- name and address of the company or person to whom the payment must be made
- amount of ground rent due
- date on which the leaseholder must pay.
If you haven’t sent a Ground Rent Demand Notice to your tenant, this could be why they haven’t paid. So, don’t delay – you can start to legally demand your ground rent payment right away.
You can issue backdated demands for up to six years of unpaid rent, as well as issuing an arrears charge. If the money is not received by the date outlined in your Ground Rent Demand, you are legally within your rights to take further action.
How to Demand Service Charges Legally
Service Charges are not payable unless they have been demanded correctly and in accordance with law:
The demand must:
- be in writing
- include the freeholder’s name and address
- include the prescribed summary of rights and obligations
- be sent to the leaseholder either at the address of the property or any other address supplied to by the leaseholder.
If you have incorrectly demanded service charges, this could be why they haven’t paid.
If your leaseholder is not paying their ground rent or service charges, you should cease contact with the leaseholder immediately and seek legal advice. Here’s how you can escalate the issue and make sure the tenant pays their debts…
Forfeiture and Possession
One of the ways a freeholder can look to enforce the payment of rent or service charges is treating the lease as forfeit. Three principal conditions must be met before you can proceed:
- the leaseholder’s lease must contain a provision allowing for forfeiture
- the leaseholder must be in breach of their lease
- the leaseholder must be in arrears for three or more years
- the leaseholder must owe £350 or more in ground rent (and any additional charges).
In order to take this action, a freeholder must obtain a determination that the ground rent or service charges are owed by the leaseholder to the freeholder. This can be done by way of a County Court Judgement (CCJ).
It is important not to waive the right to forfeit the lease. Forfeiture and possession is a complex legal matter which requires support from a legal expert. Contact us right away.
Taking A Tenant To Court
Before taking a tenant to Court, you must comply with pre-action protocol and send a letter before action together with the requirements detailed in the pre-action protocol.
If the tenant does not respond or pay you can look to take the tenant to court and obtain a CCJ.
You should always instruct a solicitor to act on your behalf when applying to court, so you can be certain that you are eligible to claim and that procedures are followed correctly. This will increase your chances of success.
The lease may contain a clause which allows a freeholder to recover its legal costs from the tenant, this means you may not be limited to be awarded fixed costs.
If your application is successful, a County Court Judgement (CCJ) will be issued against your tenant, ordering them to pay the debt.
The prospect of a CCJ may encourage your tenant to pay up before a court forces them to do so.
If the tenant continues to not pay you can look to start forfeiture proceedings.
Involvement of the Tenant’s Mortgage Lender
Mortgage lenders are always keen to avoid forfeiture of the lease so they can protect their investment. For this reason, lenders will always want to know if a mortgage holder is failing to make payments and breaching the terms of their lease.
The benefit of contacting a mortgage lender is that they may offer to pay the debt in order to maintain the security of their investment and prevent any further action on the property. However, it is worth noting that a majority of mortgage lenders require either a CCJ or commencement of forfeiture proceedings before paying the debt.
Lenders will then add the debt onto the leaseholder’s mortgage or, if the arrears are too high, take possession of the property from the tenant.
Alternatives to forfeiture
If you do not wish to go down the forfeiture route and you have obtained a CCJ there are other enforcement means available, such as:
- Registering a Charge on the Title
- Attachment of Earnings Order
- Warrant of Execution
Get Expert Legal Advice On Enforcing Payment Of Ground Rent Debts
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