What is it?
The new Pre-Action Protocol for Debt Claims came into effect on 1 October 2017 and has made some important changes to the procedure for recovering debts. The protocol is primarily aimed at businesses seeking money from individuals, including residential landlords pursuing unpaid rent from tenants.
As with other Practice Directions and Pre-Action Protocols, the main objective of this protocol is to reduce the number of cases which progress to court. It strongly encourages the early communication between landlords and tenants to clarify their dispute and resolve matters through the use of other dispute resolution methods. The proposition set by the protocol, not only endeavors to save the court’s time and financial resources, but seeks to achieve quick and efficient outcomes between parties who know their own positions better.
It is important to bear in mind that the courts will expect all claimants for debt matters, including landlords, to have complied with the protocol should the matter reach litigation. If claimants have failed to comply with the protocol, the courts will impose sanctions by limiting legal costs or awarding them against the person making the claim, possibly even where they have won the case.
How do I use the protocol?
The protocol requires that a detailed letter before claim must be served on the debtor. The letter should provide all the necessary information forming the basis of the claim. The letter should include the following details: the amount of money that is owed; whether interest is chargeable on the arrears; the type of agreement the debt arises from; details of the claimant and the debtor; and details on how the rent arrears can be paid. An Information Sheet, Reply Form, Standard Financial Statement and an updated rent schedule should also be enclosed.
Once the letter has been served on the debtor, they must be given the chance to respond within 30 days using the Reply Form. You should also allow the debtor to request further information, if necessary. This could include a request for a breakdown of rent payments that have been made to date. It is worth noting that you will only be entitled to commence legal proceedings once the 30 day period has lapsed and if you have had no response to your letter.
In the circumstance that the tenant has failed to complete the Reply Form fully, it is for you to discuss the inadequacy of the response with your tenant. In effect, the protocol recognises that an incomplete response is better than no response.
The debtor has offered to pay:
If the debtor has offered to pay a sum towards the arrears, you will need to try to reach an agreement as to how much should be paid. You should always consider whether the proposed amount is actually affordable for the debtor. You should be able to determine what is affordable from the information they have provided in their Financial Statement.
I cannot come to an agreement:
If you do not agree with the debtors’ proposals and fail to come to an agreement, you are expected to provide the debtor with a full, written explanation of your refusal. Once you have done so, you will then be entitled to commence legal action. Ideally, you should provide 14 days’ notice of your intentions to do so to the debtor.
What does this mean for landlords?
In essence, bringing court proceedings should be your last resort and it is down to you and your tenant to find a cost effective and speedy resolution. Even after issuing court papers, you and your tenant will still be required to review your respective positions in a bid to prevent litigation from taking place.
You will need to produce sufficient evidence and documents to prove that your claim exists and why it exists. We recognise that the new procedure is cumbersome for landlords in recovering rent arrears expeditiously but it does mean tenants may be able to identify where and what they have erred on at an earlier stage.
What about eviction using a section 8 notice for rent arrears?
This protocol does not replace the section 8 rent arrears process. But it does connect with it and it should be used as part of that process. Remember that a section 8 notice is usually issued when there are 2 months of arrears whereas the debt protocol can be used whenever any debt arises. Therefore, a landlord should ideally be using a debt protocol compliant letter as soon as the arrears arise and seeking to engage with the tenant to prevent the situation escalating. The 30 day window to respond can start at that point.
Once the second month of arrears has arisen then it is unlikely that any further negotiation is going to be productive. The landlord can tell the tenant that they are proposing to go to court, giving them 14 days’ notice of this through a section 8 notice.