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Guest Blog: A Guide to County Court Judgments for Rent Arrears, Part Two

By Chris Hill, commercial property litigation partner at Keystone Law

This is the second in a two-part series. The first part, published yesterday, can be found here.

The enforcement of County Court Judgments

Commercial Property Litigation partner Chris Hill at Keystone Law analyses how County Court Judgments (CCJs) are enforced in circumstances where payment of monies is not resolved.

The making of a CCJ in itself will often lead to payment of the monies owed. This is because many parties do not want to have an unpaid CCJ hanging over them. However, it is important to remember that a CCJ only really confirms that a liability is due.  It might order the payment of such liability, but it will not by itself ensure that the liability is paid (and you cannot return directly to the same judge to enforce that liability).

Rather, enforcement of the judgment sums (and actually receiving the money) is a separate process to the making of the CCJ and if the judgment debt is not settled, further ‘enforcement’ steps will need to be taken.  This article is based on CCJ’s obtained by landlords (and therefore judgment creditors) against tenants (called judgment debtors) for rent due under leases.

Should I pursue the enforcement of a CCJ?

There are various ways to enforce a judgment and the best steps will always depend on the circumstances.  An important prior question is whether, in fact, it is worth pursuing the tenant at all and if the tenant has sufficient assets to meet the liability (and that should be considered before any action is taken).

If they do not, you may be throwing good money towards a situation in which assets may not be recoverable.

It is not, however, always easy to accurately assess whether you will obtain partial or full recovery from enforcement measures.  Additionally, a party is generally only entitled to recover very limited fixed costs of these steps.

Commonly used enforcement methods

Some of the commonly used enforcement methods are set out below. It is worth noting that, subject to some limited exceptions, more than one measure can be pursued at the same time.

Taking control of tenant’s goods

This essentially involves either a High Court Enforcement Officer or County Court appointed bailiffs taking control of goods owned by the tenant and selling them at auction to raise funds to discharge the arrears. In order to do this, a landlord must first obtain a Writ of Warrant of Control which allows bailiffs to seize goods.

It is more expensive to use the High Court Enforcement Officers, but generally the results are more effective and worth the additional cost (especially if the debt is significant).  The High Court officers are more incentivised to recover assets as their remuneration is dependent on recoveries whereas County Court bailiffs are paid a fixed rate.  Therefore, it is advisable to transfer the enforcement of the Order up to the High Court (there is a minimum level of £600). This is a frequently used method of enforcement as it is relatively quick and particularly effective if the tenant relies on its goods for running its business.

The initial visit and the threat of taking goods is often enough to prompt a tenant to discharge arrears. If the debt cannot be settled in full upon a bailiff visit, a Controlled Goods Agreement (“CGA”) can be entered into which prohibits the removal of goods pending payment of the arrears under a payment plan or by a certain date – this can be overseen by the High Court enforcement officers.

In respect of pandemic-related visits, a recent High Court decision (Just Digital Marketplace Ltd (enforcement – controlled goods agreements – taking control of goods) [2021]) confirmed that High Court enforcement officers can enter a CGA without physically going inside a judgment debtor’s business. This means that officers can identify goods by carrying out a virtual tour using video conferencing technology and not need a physical inspection.

Charging orders

Another common method of enforcing judgments is a charging order. This involves securing a charge against a property (or another asset) owned by the tenant (and not all tenants own valuable property). It is a slow method of ultimate enforcement (the charge itself does not realise funds) but is effective in that it safeguards the debt for the future.

Obtaining a charging order is a two-stage process which requires obtaining an interim charging order (which the tenant gets no prior notice of) to protect the landlord’s interest.  This should be registered against the title at the land registry. The court subsequently looks to make a final charging order. The tenant will have an opportunity to object to this but generally if the debt (or part of it) remains outstanding a final charging order will be made.

Generally, applications must be made to the County Court Money Claims Centre unless the application relates to a fund in court in which case it must be made at the County Court hearing centre where the judgment was issued. There is a small court fee which the landlord can claim, along with additional interest on the arrears and a low fixed fee for legal costs, as part of the application.

If the landlord wants actual payment, it will need at a later point to make a further application for an order for sale (of the property the charge is registered against). This involves a court sanctioned process through which the property is sold, and the landlord eventually gets its funds (but only after prior discharge of pre-existing charges/mortgages).

Third party debt orders

It is also possible to apply for a third-party debt order. Under this procedure, a third party who owes money to the tenant must pay those monies directly to the landlord (and not rely on the tenant to pass on).

This can be useful if the landlord has prior knowledge that other parties owe the tenant money, and this is paid into their bank account.

Order for information

This is not an enforcement method in itself, but a useful tool to determine whether it is worth taking enforcement action against a tenant and, if so, the most effective method.

Orders can be made against individual debtors or the officers of a debtor company.

An Order requires the tenant to attend their local County Court hearing centre for questioning under oath. The tenant must fill in a record of examination concerning their financial means including their employment status, income and details of any bank or building society. This is usually done under the supervision of an officer of the court. You are also given the opportunity to include additional questions if you so wish. Following the appointment, the landlord is sent a copy of the record.

If you find out the tenant is in employment or has a bank account, you may decide to apply for an attachment of earnings order or a third-party debt order (see the appropriate sections).

Attachment of earnings orders

An attachment of earnings order (AEO) is a method of enforcing judgments debts against individuals (only) who are in employment. Under an AEO a proportion of the tenant’s earnings are deducted by the employer and paid to the landlord creditor until the arrears are satisfied in full.

An application for an AEOs (alone) can be effective in prompting payment as often debtors do not wish for their employers to know they have a judgment debt.

It should be noted that not many tenants are in employment and AEOs can take a long time to settle a judgment debt and usually, depending on the tenant’s salary, the instalments ordered are quite low.

Going forward – increasing use in the future

The various COVID-related restrictions have left many landlords feel entirely powerless. However, as this article shows there are still options – even if obtaining a CCJ and thereafter enforcing it can take time, cost and ultimate recovery cannot be guaranteed.

Historically, landlords relied on a range of other, perhaps simpler, measures (such as forfeiture, CRAR or guarantors) to ensure payment of rent and so for some, CCJs will be a novel experience. Even so, as the restrictions will, by March 2022, have inhibited action for a full two years (and maybe still longer), it is expected that the pursuit of CCJs and enforcement of them will now inevitably increase.

This is the second in a two-part series. The first part, published yesterday, can be found here.