As a freeholder, one of the most challenging and frustrating tasks that we can face is dealing with difficult tenants. From disturbing neighbours to illegal alterations and subletting without permission, tenants can test the patience of even the most easy-going landlord. Unfortunately, it’s also very common for tenants to avoid paying their ground rent.
This can be very irritating, especially considering that your tenant signed the terms of their lease and should therefore be aware of their obligations. Of course, there are some tenants with legitimate reasons as to why they are failing to pay their ground rent, so it’s best not to assume that it’s anything untoward.
Nevertheless, by not paying their ground rent, your tenant is in breach of the terms of their lease. Furthermore, you’re not in receipt of your money, arrears are building up and you’re continuing to lose income. So, what can be done? Here are five actions you can take to recover ground rent:
- Demand ground rent legally
- Write to the tenant’s mortgage lender
- Take the tenant to court
- Register a charge on the title
- Forfeiture and possession
- Ensure that you’re demanding ground rent legally
You may not be aware, but your tenant does not have to pay any ground rent to you unless you have demanded it by way of an official notice, in a prescribed format and within strict timeframes. This is commonly known as a Ground Rent Demand Notice and is set out by Section 166 of the Commonhold and Leasehold Reform Act 2002.
The Ground Rent Demand Notice must specify:
- The name of the leaseholder
- The name and address of the freeholder
- The name and address of the company or person to whom the payment must be made
- The amount of ground rent due
- The date on which the leaseholder must pay it
If the demand notice is sent after the due date, it must state the date on which the ground rent would have been payable under the terms of the lease.
If you haven’t already been doing this, it could be the reason that your tenants haven’t been paying you ground rent. However, the good news is that you can start legally demanding ground rent straight away, using a free Section 166 Demand Notice template. You’ll need to ensure that you follow the instructions carefully, as any incorrect information will render the notice invalid and you’ll still be left out of pocket.
Another hugely beneficial element of Section 166, is that you can issue backdated demands for unpaid rent for up to six years. So, if your tenant has managed to avoid paying ground rent for quite some time, on sending the Section 166 Notice you could end up retrieving a significant sum of money. If you need support with this, Freehold Sale offer a low-cost Section 166 service that can save you time and hassle.
Once you have served the Section 166 Demand Notice correctly, you will be legally within your rights to take further action should you not receive the monies due. You will also be entitled to issue an arrears charge to the tenant. So, if the tenant continues failing to pay, they can start to rack up some hefty bills.
2. Write to the tenant’s mortgage lender
If your tenant has a mortgage, contacting their lender should be your next move. The lender will always want to know if their mortgagee is failing to make payments and breaching the terms of their lease. This is because the lender will be keen to avoid forfeiture of the lease and protect their investment. The leaseholder will also be in breach of the lender’s conditions when they fail to make payments for ground rent.
In many cases, the mortgage lender will offer to pay the debt in order to maintain the security of their investment and prevent any further action on the property. Lenders will usually add the debt onto the leaseholder’s mortgage and this can be done with or without their consent. As a result, some lenders may start proceedings to repossess the property if they deem the amount of arrears to be too high.
You can find details of your leaseholder’s lender on the Title Register, which can be obtained from Land Registry.
3. Take the tenant to court
In cases where your leaseholder does not have a mortgage, or where their lender is not willing to pay the debt, you can consider taking the matter to a small claims court. Here, you can issue a money claim to recover the ground rent owed. It’s advisable to instruct a solicitor to act on your behalf when applying to court, in order to ensure that you are eligible for the claim and that procedures are followed correctly.
Using a solicitor that specialises in the recovery of ground rent arrears will be your best option as they can ensure that the matter is dealt with as quickly as possible. This is particularly important as ground rent arrears can quickly spiral out of control. If you don’t have the funds available, you may be able to appoint a solicitor on a no recovery no fee basis.
If your application to the court is successful, a judgement by the court (CCJ) will be issued against your tenant, ordering for the debt to be paid. This should include the monies owed to you for ground rent and arrears charges together with any fixed costs as a result of the claim (for claims under £5000).
Most landlords don’t have any difficulty in successfully obtaining a court judgement for ground rent arrears to be paid. However, it’s likely that the tenant will want to avoid a court hearing and additional fees, so may pay up before it gets to that stage. The tenant will usually only be allowed to pay the ground rent debt in full rather than in instalments.
Once the tenant has been ordered to pay the debt by the court, there are several options available to you for enforcing the judgement, which you should discuss with your solicitor. It’s likely though that the tenant’s mortgage lender will be given one last opportunity to settle the debt in order to protect their interest. If the debt is not settled, you may also have the right to repossess your tenant’s home, but this is very rare.
Furthermore, the CCJ will be fixed onto your tenant’s credit report, which will impact their ability to obtain credit and finance for the following six years. So, this should be a good deterrent to stop them from avoiding making future payments for ground rent or anything else.
4. Register a charge on the title
If you do not think you’ll be able to recover the ground rent debt directly from your tenant or their lender, you can register a charge on the property’s title document. This will stop your tenant from selling their home without paying their debt to you. You will need to apply to the courts for a charging order to enable you to take this action. If you obtain a court judgement (as discussed above) you can apply for a charging order to secure that judgement.
Registration of the order will usually take place before the court hearing to prevent the tenant from selling their property before the charge can be registered. This is called an ‘Interim Charging Order’ and is granted based on an application made by a judgement creditor. If the judge considers it necessary after the hearing, he will grant a final order.
When a final charging order is granted, any costs incurred as a result will be added to the existing debt to be paid by the tenant. The charge will be registered to the title by Land Registry, and will provide your details, the monies owed to you by the tenant and details of the court which granted the order.
5. Forfeiture and possession
This should be your very last move when you have exhausted all other methods of retrieving the ground rent debt. No one wants to see someone lose their home, so you should always try to help your tenant repay the debt using alternative arrangements. Forfeiture of residential leases is very rare for non-payment of ground rent claims and many landlords choose to avoid taking this action.
Seeking possession of your tenant’s home is a lengthy and complicated procedure, which will require expert guidance and support from a highly knowledgeable legal professional. Before you can proceed, there are three principle conditions that must be met:
- The tenant’s lease must contain a provision allowing for forfeiture
- The tenant has been in arrears for three or more years
- The tenant owes £350 or more in ground rent (and additional charges e.g. maintenance)
It’s usual practice to give a tenant four weeks to pay their ground rent debt together with any associated charges before the court hearing for forfeiture of the lease. It’s likely that the tenant will also be ordered to pay your legal costs. If the tenant pays the debt on time, no further legal action will be taken, and they will avoid forfeiture of the lease. However, if the court awards an order for forfeiture as a result of non-payment, and your tenant fails to satisfy the conditions within it, you will be entitled to repossess their home.
If you find yourself in a position where you’re owed ground rent, ensure that you follow the legal procedures to recover the debt. As long as you have met the requirements of Section 166 of the Commonhold and Leasehold Reform Act 2002, you have every right to take further actions against your tenant in order to collect the monies owed.