We are a small management company with just 16 properties, but we seem to have considerable problems with service charge defaulters. Do you have any advice on how to deal with such people? Specifically, we were thinking of using a debt collection agency and were wondering if you have any advice in this regard.
The FPRA replies:
With regards to the action that can be taken against the service charge defaulters, it is difficult to advise fully without seeing a copy of the lease. However, on general terms, you will need to read the the lease terms to ensure that the management company has authority to commence proceedings against the leaseholders for arrears of service charge. If it does, then, we would advise, that the leaseholders are sent a couple of letters from the management company (if this has not been done already), requesting payment and advising them that in the event that the arrears are not settled within, say seven days from the date of the letter, the Board will have no alternative but to pass matters onto solicitors. Once the matters are passed to solicitors, if the arrears are still outstanding, proceedings for the collection of the arrears should be instituted in the county court, together with interest and costs (if permitted under the terms of the lease).
On a side note, are the properties mortgaged? Depending on the Lender, it may be possible to write to the respective Lenders to see if they are prepared to settle the outstanding arrears. As to whether this approach works depends on the requirements of the specific lenders; some lenders may settle the arrears, others may insist on a judgement being obtained from the county court.
With regards to legal costs that may be incurred in pursuing the arrears, in many leases there may be a clause which permits either the costs of chasing arrears to (i) be charged to the offending leaseholders specific account or (ii) be charged through the general service charge account for the block.
In the event that the lease does not provide such a provision, then the legal costs of pursuing the arrears, will have to be borne by the Management Company.