If your tenants leave owing you money – what can you do to get this back?

The main reason tenants tend to get evicted is because of rent arrears. But once the tenant is evicted – how can you get paid your outstanding rent?

The answer is ‘with great difficulty’.

The problem is that you can’t get blood out of a stone and if a tenant genuinely does not have the money – he can’t pay it to you.

Thats not to say that its impossible to recover rent arrears, but you need to have a lot of determination and staying power. Most people would rather leave it and move on with their lives.

But lets take a look at it and see when it is possible and when it is not.

The nightmare tenant

First, you need to accept that there are some tenants who are almost certainly going to ‘get away with it’.

These are those tenants who take care never to have any assets anywhere you can get at them through legal process, and who don’t care if they have a bad credit record.

They will be constantly moving so you can’t catch up with them, and they may change their name for good measure.

The only thing to do about this sort of person is to make sure they never become one of your tenants. This is why proper referencing is so important.

If you find that they are one of your tenants, then the next best thing is to get them evicted as soon as possible. You will be losing money until you do.

Lets take a quick look now, at the legal tools available to you for recovering unpaid money from tenants and their good points and bad points.

The County Court Judgment (CCJ)

This is the first stage. You can’t use any of the enforcement procedures without getting a CCJ first.

A CCJ can however be useful just on its own. If one day your tenant wants to get a mortgage or bank loan they will find it difficult with a CCJ registered against their name.  They may pay up at a later date to get it removed.

I have known this happen.

However if you want to get paid before this, there are some court processes which you can use to help:

The Court Enforcement Procedures

The County Court Bailiffs

Here a bailiff will ‘levy execution’ on your tenants’ goods and then take them away to sell them if they don’t pay up.  You get paid out of the proceeds of sale.

This sounds good but there are a number of problems:

• The bailiffs can’t enter the tenant’s property unless the tenant lets him in
• He can only seize things which belong to the judgement debtor (tenant) – and not for example that flash telly on hire purchase or the posh car if it turns out to be leased
• If the goods are actually taken to auction, you are responsible for the storage costs
• You are also responsible for the auction costs
• Things often fetch very low prices at the types of auctions bailiffs use

This means that you could end up substantially out of pocket if the sale price is less than the bailiffs costs.

Incidentally you cannot take the things yourself in lieu of your debt – unless you attend the auction and buy them yourself.

The High Court Sheriffs can act for you if your CCJ is for more than (I think) £600 and they tend to be a lot more efficient.

If you want to go down this route, I would recommend you use the Sheriffs service. However if the tenant ain’t got the valuable stuff you ain’t going to get a lot of money out of this exercise.

What you really want to achieve by using the Bailiffs / Sheriffs is to get the debtor to pay up to prevent their things being taken away and sold.

You don’t actually want the items to be sold – as then usually everyone loses out (apart from the sheriffs / storage companies / auction houses).  So its best only to use this process if you think your debtor will pay to prevent it happening.

Attachment of earnings order

You can only do this if your debtor has a job.  But if he does, it is a good thing to try. The few times I was able to get payment from evicted tenants was via this route.

However

• You can’t use it if the tenant is a freelancer / self employed
• Landlords are often outraged at the small monthly sums debtors are ordered to pay under this process – so it will usually take a long time to get paid
• If the tenant leaves that job you have to start all over again

Third party payment order

This used to be called a garnishee and can occasionally work spectacularly. It is an order of the court ordering someone who owes money to the debtor to pay it to you rather than to them.

It is generally used to claim money held in bank and building society accounts – so you need to know their account details (information you need to collect from prospective tenants in your information form).

However – there needs to be money in the account at the time the Third Party Payment order is served on the bank (which is done before the tenant knows anything about it) for you to be in with a chance.

If money is paid into the account the day after – its too late and does not get ‘caught’ by the order.

So third party payment orders are a bit of a gamble. If you do want to use them – ask the court to let you serve the papers on the bank yourself, then you can time it for a time when you are pretty sure that money has been paid into the account.

Bankruptcy

You should only ever threaten this (and serve the notice) if your debtor will pay up to avoid this happening. Actually making someone bankrupt is an expensive business and is unlikely to net you any money.

Charging order

This is where the court converts your CCJ into a legal charge (like a mortgage) which is registered against the debtors property – ie house or flat (or other land if they have it).

After this has been done, you can then make a separate application to the court for an order for sale, to recoup your money.

However, most tenants won’t have any property you can use for this exercise. If they do, it will almost certainly have no equity, so if the property is sold, there will be nothing left over once the bank and building society have had their share.

It is worth considering though for larger debts (if the tenant has any property) as if the price of property rises, you may one day be in with a chance.

Getting a charging order is a bit technical however (you need to register it at the Land Registry etc) so if you decide to do this, don’t try and do it yourself.

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So those are the tools at your disposal to enforce payment through the courts. They are all of them bureaucratic, long winded, hedged around with complex rules, and potentially expensive if you use solicitors.

I have long thought that enforcement procedures are the achilles heel of our legal system.

The psychology of debt collecting

However recovering unpaid money needs a bit more thought than just following a procedure. You need to know your debtor.

• What action will have the best chance of getting your debtor to pay? Or,
• What can you threaten to do that will make him pay to prevent you doing it?

Everyone is different and most people, apart from the nightmare tenant type discussed above, will pay to prevent something happening that they don’t want.

You need to find out what that something is.

Playing the long game

Bear in mind also that CCJs can be enforced for up to six years after they have been obtained and even, with leave of the court, after that.

Your debtor may be penniless just now but in five years time he may have a good job. If someone owes you money, it’s worth getting a CCJ and then just keeping tabs on them and waiting until they are in a position to pay.

Many will be one day.

And finally

Now you have an idea how the system works, you can think about how to use it. The type of information you need to collect about your tenants just in case. And what you can do if the worst happens.

The other alternative is to avoid the problem arising in the first place by taking out rent guarantee insurance.  You have to pay for this of course but it could be worth-while.  Many landlords take it out as a matter of course.

You can read more about this here.