Brady Solicitors’ Caroline Lee explains how she worked with a developer to recover £90,000 of ground rent arrears and help take their ground rent account back into the black.
Brady Solicitors was instructed on a batch of ground rent arrears cases, the majority dating back several years. The developer had never previously used debt recovery solicitors and, despite the size of the arrears, it took a bit of persuading to get them to give Brady Solicitors a try.
When Caroline assessed the cases it was clear that a more robust set of processes may have prevented many of the arrears occurring in the first place. Payment reminders were issued on a quarterly basis but never followed up, and leaseholders could simply avoid paying.
Our first step however was to tackle this existing large sum of arrears, as Caroline explains:
“Taken individually, ground rent debts can seem insignificant, but when the total arrears are over £90,000 there is an inevitable impact on cash flow.
“Through a mix of leaseholder communication, excellent legal tactics, and negotiations with the leaseholders’ mortgage lenders, we were able to fairly swiftly recover the vast majority of these longstanding ground rent arrears, without the need for court proceedings.
“In fact, just 3% (five cases) went to court, each resulting in a positive outcome for our client.”
Caroline and her team then switched their attention to helping the developer to ensure future ground rent demands were paid on time.
“Individual ground rent debts can quickly mount up without a proactive approach to collection. Our approach was a mixture of process improvement and education – ensuring the leaseholders understood the importance of paying.”
Caroline established a structure whereby demands were issued 21 days before payment became due, and a reminder letter was issued 10 weeks after the due date. This letter reminded the leaseholder of the need to pay and advised that legal action would be taken if full payment wasn’t received.
Caroline explains why leaseholders were given a 10 week window:
“Because of their history of not chasing the ground rent debts, the developer didn’t want to damage leaseholder relationships by suddenly switching to strong enforcement tactics. By waiting 10 weeks to issue the reminders we were able to introduce leaseholders gently to the new regime and give them plenty of time to settle their arrears.”
Change of ownership
Caroline also established that no one was updating the developer when flats changed hands. This meant that the ground rent demands were not always reaching the target recipient.
“We spoke to the managing agents and put processes in place to ensure that the ground rent owner (the developer) was notified whenever a property was sold. By getting the managing agents to work with the developer, we can be confident that demands are reaching the right person.”
Leaseholder communications secure payment
In the meantime we had been instructed on all their other outstanding ground rents (a further 241 arrears cases), most of which were less than three years old and for relatively low values.
Caroline and her team recovered this full set of arrears by talking to leaseholders on an individual basis and securing their payment – all at no-cost basis to the developer client.
“Ground rents provide a useful income for property developers but chasing up demands and collecting arrears can fall down the list of priorities – until the arrears start to affect cash flow. Our client is now in the enviable position of having a ground rent portfolio that is in credit, plus a robust set of procedures for future ground rent demands to ensure it stays there.
“From our perspective we have somewhat done ourselves out of a job by eliminating the arrears but we are delighted to be able to get our client back into the black – and leaseholders have appreciated the transparent and intelligent approach.”