What if a property guardian is unable to pay their licence fees?

Some simple reminders!

It sounds simple, but it is really important to regularly reach out to your property guardians and remind them of their responsibilities to pay. This doesn’t have to be a formal communication (unless a property guardian is already in arrears), it could be via a monthly newsletter, email reminder or poster campaign in your properties. A common oversight is to ignore the arrears for a long period of time and get to the point where there is a large sum outstanding which the property guardian is unable to pay. Obviously good internal management and housekeeping will help with this too!

They’re in arrears, what next?

As soon as the property guardian starts falling into arrears, it is worth having a conversation with them about whether this is a one-off issue, or whether they are experiencing long-term financial difficulties and can no longer afford to stay at the property. This may be particularly topical as we approach the festive season where property guardians’ outgoings may be higher than usual.

If any discussions are held about a payment plan or other concessions, it is important to keep such conversations on a ‘without prejudice’ basis so that you can still take legal action if required. This can be done by marking all emails/texts ‘without prejudice’. If the conversations are verbal, it needs to be said at the outset (and ideally a contemporaneous note logged to record what was agreed).

If you agree to move the property guardian to a property with lower licence fee they can afford to pay (if that’s an option), you will need to ensure they enter into a new licence agreement and be extra vigilant about their ability to pay.

What if they are unable to pay whatsoever?

If the property guardian is unable to pay but remains in the property, a notice to determine can be served and arrears deducted from the deposit (depending on whether there is one (which there should be), and other terms of the licence).

If a property guardian moves out of the property but continues to owe licence fees, there is an option of starting a standalone court money claim for the amounts owed. Such action must be carefully considered in financial terms as if the amount owed is not significant, the costs of making a claim can outweigh the amount owed. Also, even if you are successful in your claim, the court will not compel the guardian to pay your legal costs in pursuing that money claim (other than in very rare cases or in money claims over £10,000).

The other difficulty with such money claims is potential obstacles in enforcing the judgment. If the property guardian is unable to pay the judgment amount and has no assets or fixed employment, for example, enforcement may be extremely challenging and costly.

If a notice to determine is served on the guardian and they do not leave or pay the arrears, you can claim the arrears as part of your possession claim (and the breach of licence agreement in failing to pay the licence fee would be pleaded as one of the arguments for seeking possession).

What do we think?

Because of the potential costs of legal proceedings and the enforcement challenges, it is always best to address the issue as soon as the property guardian falls into arrears so that you can understand their situation and either agree a payment plan or inform them about next steps so they are aware that you will be pursuing the debt.

If you serve a notice to determine whilst the debt is relatively small, it can be covered by the property guardian’s deposit once they vacate the property which is the best outcome with little effort.

Finally, if it comes to issuing possession proceedings including seeking a money claim to recover the arrears and you have engaged in without prejudice discussions, please let us know as it is relevant to our understanding of the claim.

As ever, we are on hand to help advise about these issues based on our extensive knowledge of the property guardianship sector. We were delighted to welcome Amy Castleman back from her sabbatical earlier this month. If you would like to discuss any issues with property guardians failing to pay their licence fees and/or just want to catch up with Amy or Irina for coffee or festive drinks, please get in touch.