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Guest Blog: The Growing Use of County Court Judgments for Rent Arrears

By Chris Hill, commercial property litigation partner at Keystone Law

The government recently extended the ban on commercial evictions until March 2022. Whilst this further extension and other restrictions on enforcement action have left landlords with limited options to recover the rent due or seek to remove the tenant, there are still some measures they can take. A key one is issuing a money claim at court seeking a court judgment for the rent arrears.  Many landlords have decided they could not or would not wait until March 2022 to commence recovering rent and so have pursued this route in the meantime.

What is a “CCJ”?

A County Court judgment for a money claim is commonly referred to as a CCJ.

It is the same as a High Court judgment except ordered in the County Court. Ordinarily a claimant can issue proceedings in the High Court if the value of the claim is over £100,000.  The financial limit of claims the County Court can deal with is £250,000.  However, with the High Court receiving a very large number of ‘straight-forward’ claims for rent arrears, the judiciary has created a temporary triage system in which relatively simple claims are being transferred back down to the County Court.

Generally, claimants prefer the High Court as it tends to be quicker and more efficiently run, but it is the County Courts which will be dealing with the vast majority of covid-related arrears claims.

Features of a CCJ

A CCJ is form of court order or judgment. The time for the compliance of the order is fourteen days. After this time, it can be enforced.

A party who is facing an imminent CCJ being made against them, may be able to apply to the Court to have the judgment payable in instalments. This would mean that the enforcement steps are only open to the landlord if those instalment obligations are breached – potentially giving tenants valuable breathing space. If a party does not obtain a payment plan, the judgment will be payable in full immediately after the 14 days.

Any judgment (or order to pay money) over £5,000 attracts interest on it. The usual judgment order rate is 8 per cent. That is a relatively high rate and important to bear in mind for both those liable to the debt but also those with the benefit of it.

In some limited circumstances the party facing the CCJ may be able to obtain a ‘stay of enforcement’ in respect of the debt – i.e., the landlord could not take any steps to enforce that judgment. However, as this prevents the landlord recovering its money, the liability has (by then) been established and the landlord will have been out of pocket for these sums for a considerable period of time already, a tenant will face an up-hill battle to obtain a stay of enforcement from the court.

In the economic climate we are in, a landlord will often want to take enforcement steps as soon as possible in order to recover the money owed to them.

Additionally, a landlord might also have concerns that a tenant might dissipate its assets or concerns about the long-term viability of the tenant. However, generally speaking a landlord need not take immediate enforcement steps and a judgment is generally enforceable for (at least) six years after it is made.

Will I definitely get a CCJ for Covid-related commercial rent arrears?

There was much debate in the property industry, post March 2020, about whether the effects of the pandemic might mean, for whatever legal reason, that commercial rent was not payable (in full or in part). However, two recent High Court cases, namely, of Bank of New York Mellon – Cine-UK Limited and Commerz Real Investmentgesellschaft mbH v TFS Stores Limited, essentially confirmed that it was. A wide range of legal arguments were put forward by tenants, but none of these arguments were successful. As a result, presently it is generally accepted (absent a successful appeal, further case law or other developments) that commercial rents are due throughout the pandemic period.

The government has however recently announced a limited rent arbitration scheme for arrears which remain outstanding. The details of this are yet to be confirmed but it is expected that the scope of this scheme will be relatively limited, apply only to arrears that continue to be unresolved, apply to shops which were forced to shut down and for the periods of national lockdown.

Why pursue a CCJ?

There are several reasons why landlords have sought CCJs during the pandemic, notwithstanding the moratoriums on taking back possession and other enforcement methods. These reasons include:

  • exerting pressure on tenants;
  • removing any lingering uncertainty that the rent is lawfully due notwithstanding the impact of the pandemic (and the two recent High Court cases confirmed that they are);
  • getting further along the enforcement process than landlords who have held off taking formal action; and
  • looking in the longer term to enforce the judgment by (non-prohibited) means.

General adverse effects of a CCJ (without enforcement measures)

Landlords will be mindful that the existence of a CCJ can have several significant impacts on businesses. These include:

  • an adverse impact on the credit worthiness of the business – as the CCJ will be listed on the Register of Judgments;
  • consequential restrictions on the business’s ability to borrow money in the future
  • a CCJ might be a breach of existing lending requirements;
  • it will make the business liable to enforcement action (which we will write further on separately); and
  • most significantly, the CCJ can result in a business being wound-up if it is unable or does not pay the CCJ (even if insolvency measures are also temporarily restricted for the time being).

With the current moratoriums on forfeiture, CRAR being extended all the way through to March 2022 (and possibly later still), we are already seeing landlords increasingly turning to CCJs to pursue rent arrears and we expect this trend to continue further in the second half of this year.  However, in the longer term, we would cautiously predict their use to fall again as things return to ‘normal’.

Next Monday, Chris Hill will explain some of the primary ways in which a CCJ can be enforced enabling landlords to forcibly recover the monies due under a court order.