TOP TIPS for prompt payment of SERVICE CHARGES
At Allsquare, collecting service charge and ground rent debts is our bread and butter. We often see the same mistakes and have created these top tips to offer guidance to our clients and the property industry as a whole.
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The key to recovery – Well drafted and understood Lease clauses. Ensure the Lease is drafted by an experienced and knowledgeable property lawyer who has extensive understanding and experience of working with Leasehold property. The Lease should have clear and pragmatic provisions for service charges and these should be highlighted to the Tenant. Whenever a Tenant claims that a situation at the site is amiss, the property management company must review the Lease clauses in detail and ensure the day to day set-up is suitable and compliant with the Lease. Many non-payment issues, especially very drawn out issues, are based on either the Tenant or Property Manager, or both, misunderstanding the terms of the Lease. It is particularly important to check when you have recently taken over a site and are trying to maintain the status quo.
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Provide the Service. We are often instructed to recover arrears and identify that there are some justifiable grounds for withholding payment. Whilst most Leases will require payment notwithstanding, in reality a case will be weakened by poor levels of service and the amount that it is possible is likely to be reduced accordingly.
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Administration Charges. When we are recovering service charges and ground rent we add charges that are open to scrutiny by the Courts and First-Tier Tribunal (FTT) on the basis of reasonableness. This is why we always ensure our charges are the most competitive in the industry. You may also add administration charges for your own in-house credit control before the files are passed to Allsquare, but as always you must ensure that these charges are as reasonable as possible. Please contact us if you require help with your terms and conditions.
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Interest Charges. Leases can allow interest to be charged on unpaid service charges. Highlight this clause in chasing letters as this can encourage payments to be made promptly. A typical Lease will specify a late payment interest rate of around 4% above base rate. The FTT and the Courts can prevent landlords requesting interest charges if they are seen to be unreasonably high, even where it is specified in the Lease. Therefore we suggest that a reasonableness test is applied to all such charges.
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Communication, communication, communication. It is a simple but crucial point, as the professional in the relationship it is beholden on Property Managers to ensure communication is up-to-date between all parties involved. We often have debts passed to us where there is a line of enquiry made by the Tenant which has not been fully answered. This will always undermine our work; if it is fully answered the debt may be paid.
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Fair and Transparent Credit Control. Ensure you have robust, fair and transparent credit control procedures in place. The procedure should be fixed in writing, published and all tenants directed to this before they become part of the procedure. The procedure must then be followed rigorously.
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Good Payment Systems. Make sure that the methods and options for making payments are easily accessible and well understood. You should consider offering standing orders and/or direct debits to the client, where possible in order to be entirely reasonable. In general, it is best practice to provide reasonable settlement options over an extended period where you identify that a party is genuine in their desire to pay, but struggling, or are vulnerable in some other way. Allsquare can help manage payment agreements and can take a very soft approach to ensure leaseholders do not feel penalised by requiring some help every now and again.
Conclusion: if, after you have dealt with the above, debt recovery is necessary then it is once again best to have a clear, well published and robust policy that is followed on each occasion. Leaseholders should be aware, in no uncertain terms, why non-payment of service charges affects the running of their development (maintenance is paramount).
Remember, if you send a Service Charge Demand, you must show the Landlord’s name and address, together with a summary of the tenants’ rights and obligations. Your demand will not be payable until both of these requirements have been complied with.
Contact us for more information, either from our Debt Recovery Team, our Dispute Resolution Solicitors or our Property Solicitors.