The Pre-Action Protocol For Debt Claims – What’s The Impact For Landlords?
The Pre-Action Protocol for Debt Claims came into force on 1 October 2017 and it gives tenants the advantage of much longer response times to pre-action correspondence. The Protocol will apply to claims by landlords against tenants for arrears of rents due under their leases, licences or tenancies at will, but will also apply to other types of debt claims.
At the outset of a claim, the landlord is required by the Protocol to send a Letter of Claim (by post) to the Tenant before proceedings are commenced. That letter should enclose information on how to manage debts, a prescribed form for response and a financial statement to be completed by the tenant evidencing their income, expenditure and any proposals to repay by instalments.
The Letter of Claim is now more involved than previously and must include:
i. the amount of the debt, and up to date statement of account and whether interest or other charges are continuing
ii. whether the debt arises from an oral or written agreement and the details of such agreement and whether the debt has been assigned
iii. if regular instalments are currently being offered by/being paid by the tenant, an explanation of why the offer is not acceptable and why a court claim is still being considered
iv. details of how the debt can be paid (for example, the method of and address for payment) and details of how to proceed if the tenant wishes to discuss payment options and
v. a copy of the Information Sheet, Reply Form and Financial Statement form in the form annexed to the Protocol and the address to which the completed Reply Form should be sent.
A tenant must then:
Reply using the response form within 30 days of the Letter of Claim, either acknowledging that they owe the debt or disputing it.
Request any documents that the landlord hasn’t supplied.
Depending on the response, agree to pay the debt at once, request time to pay by instalments, or time to obtain debt advice.
If obtaining debt advice, a further 30 days is allowed to return the response form, and then another 30 days to obtain debt advice. This leaves the landlord unable to take further action for at least 60 days.
The Protocol expects that all appropriate steps should be taken to resolve the dispute without starting court proceedings, including Alternative Dispute Resolution. If the tenant requests time to repay the debt, the Protocol requires the landlord and tenant to try and reach an agreement for a repayment plan based upon the Tenant’s income and expenditure. If an agreement cannot be reached, the landlord should give the tenant a minimum of 14 days’ notice of its intention to commence court proceedings, again slowing the process down further for landlords.
What effect does the Protocol have on Landlords?
The process of debt recovery will become a much longer and more frustrating process.
Landlords letting premises to individuals and sole traders may suffer most noticeably.
The requirements of the contents and enclosures for the letter of claim will increase the initial outlay of time and costs.
Tenants have increased scope for delaying collection and can delay payment for up to 90 days. Formerly it was accepted practice that it was reasonable to allow a tenant between 7 and 14 days to provide a response to a Letter of Claim. The tenant now has 30 days to reply to the initial Letter of Claim. If the tenant indicates that they are taking debt advice and requests further documentation, the tenant has the opportunity to delay payment for up to 90 days.
If a partial response is received to the Letter of Claim, the onus is on the landlord to contact the tenant to discuss and obtain information. Tenants have the opportunity to exploit the position here and buy further time.
What happens if Landlords fail to comply with the Protocol?
Any court proceedings may be stayed to remedy the failures to comply and costs sanctions may be imposed, including the inability to recover interest from the tenant.
Practical Points
Landlords who regularly let premises to individuals and sole traders may wish to consider their future tenants more carefully.
Accurate record keeping and up to date accounts is key, so in the event that a tenant falls into arrears, we can act swiftly with all required information to hand and issue a Letter of Claim at the earliest opportunity.
Acting quickly will reduce any further delays in recovering the debt; don’t delay until the tenant falls further into arrears.
by Anya James-Weller
Solicitor