For Residential Management Companies which often have no other revenue streams, the flow of service charges is key to ensuring estate maintenance remains on track.
Usually, the threat of forfeiting their residential lease is enough to persuade even the most persistent of non-payers to settle their service charge debt. Forfeiture will also encourage lenders to settle the arrears on their customer’s behalf.
However, Residents’ Management Companies can end up with stubborn service charge arrears in situations when forfeiture is either not practical or not possible.
This generally arises in one of two scenarios:
Not practical: there is no mortgage lender on the property, or
Not possible: The freeholder does not permit forfeiture
Forfeiture may not be practical
Where there is no lender to step in and pay, you can issue forfeiture proceedings to recover the arrears, but this can be a lengthy process with no guarantee of success.
You need to allow at least two to three months for the forfeiture claim, plus six months before the property can be sold. So, even if the property sells on the very first day, you are looking at a minimum of nine months after the judgment.
You will then need to recoup the arrears and costs from the freeholder’s proceeds of sale. In addition to the time it take you also need to ensure the appropriate undertakings are in place from the freeholder to ensure the service charge debt is discharged.
Forfeiture is not possible
If the freeholder doesn’t allow forfeiture (many freeholders understandably do not wish to allow any forfeiture action for reputational reasons) or requires you follow their prescribed format to protect their ground rent revenues, you will need to be able to support your RMC client to recover the arrears using alternative methods.
In both of the scenarios above, we have had success in using a High Court Enforcement Officer (HCEO). This can be a much quicker option and often leads to prompt payment.
To instruct an HCEO you will need to ensure you have the address of the leaseholder’s main residence. The enforcement will be carried out at this property. If the debt is not paid, then assets at the property will be seized. In our experience this is extremely rare, and the debt is usually paid on the Officer’s visit.
This alternative enforcement option can in certain situations give you a faster route to recovering the arrears for your RMC clients and importantly removes any dependency on the freeholder.