For those involved in collecting monies from long leasehold residential tenants, you’ll appreciate the often endless task of getting everyone to pay up. If you’re a managing agent, freeholder, or management company of a large block of flats for exmple, this can soon accumulate to significant monies that then cause cash flow issues.
There is already a lot of legal information available on how to peruse these, including with shorter-term AST tenants, whereas from a property management perspective you often need a bit of thinking outside the box, common sense, and cost-effective ways to get the dosh in.
Therefore here are some general pointers to help you out, whether that’s a ground rent, service charge, or other one-off recharge. They’re aimed more at the long-leaseholder who will ‘own’ their area through a long lease, and owe monies to the overall land owner or controller, although similar principles can apply to other scenarios.
So here goes:
1. How Invoices Differ to Payments
This is a classic misunderstanding that can cause genuine confusion, or an excuse to delay payments.
A formal invoice and demand is probably needed, with all the necessary legal notices for ground rents and service charges, and on the right time basis as in the lease – maybe every year or six months.
That’s the formal bit, whereas in reality a landlord and management company is willing to stage payments over a period of time, typically a monthly payment plan.
As long as you realise these two worlds, that can be fine. So any accounts summary may well show only part-payments of any invoice, because you’re only so far through that formal invoice time period.
But make sure this is understood, and that it’s actually there to genuinely help payments – if not then you can always resort back to the official invoice-basis which is often worse in terms of more money being needed up front.
2. The 80/20 Principle of Pursuit
The 80/20 principle is an important one in life and business, where often 20% of your resources will provide 80% of the end results.
Or in this scenario, 20% of your debts will tend to cause the majority of issues to deal with. The remaining 80% will either tick along nicely, or just need a basic chase and contact to remind people and flush out genuine queries like how to pay.
Which leaves the remaining 20% problems. These are the ones to focus on, and often cause the most problems in that they are the lion’s share of the debt and also most productive to focus on these for maximum use or resources to bring in arrears quickly.
3. The Bottom-Line Affordability
With residential properties, you’re heavily dependent upon people’s personal finances and budgets, so although they may agree to owe £500 arrears, it may be another issue to have £500 actual cash available to pay. Even investors who let out can say times are hard and they have non-paying sub-tenants.
Whilst being firm to pay, it’s also worth being fair to receive money, otherwise it can be more hassle and cost. So maybe look at payment plans, but make sure these are definite amounts, and ideally regular bank payments by standing order.
Also, always double check that money then appears. Even after a productive chat and great promises, you often need to see the actual money coming to believe it.
4. People Power
Remember that money needs to come from real people authorising and issuing, therefore get to the bottom of who you’re dealing with.
If an owner has let out the property on, say, a buy-to-let basis, then make sure you have their full contact details off site, and if not, then ask the current occupier to help confirm (or at least pass your contact details on).
In addition to formal addresses to serve invoices and notices, get hold of email addresses and mobile phones as modern practical ways to easily communicate with people.
5. Don’t Do Deductions
Residential occupiers and owners are prone to doing their own maths and accounting. So this applies for when they feel that a landlord owes them anyway for a repair they had to carry out themselves, or they query, say, the cleaning provided in the service charge and believe that a reduction is needed.
So if they owe £200 ground-rent and service charge, and they think a landlord owes £75 back or as a deduction, then hey, why not just pay the £125 difference.
A definite no-no, even with genuine cases. It’s not only barred from most leases, but even where it is justifiable in principle then it’s important to keep a proper accounting trail of things and therefore separate transcations.
6. Pick Your Battles
If you’re facing lots of arrears, then you might have to pick your battles carefully for some easy wins with less hassle.
So go for ones where it is just a straightforward administration issue like re-sending an invoice, or those with significant arrears that although may take further legal action it’s worth it to receive that size of money.
It might also be worth dealing with king-pin ones in that once resolved they will help have a knock on effect with chasing others, so for example word may spread locally that you mean business with collecting these now.
Another trick as well, often with very small sums, is to actually deliberately leave until a point of ‘trigger’ in the future. This might be a future sale where you can insist upon arrears being paid before agreeing to this sale, if applicable.
7. Bringing in the Mortgage
For those owners that have a mortgage secured on the long lease property interest, bingo.
After first determining who they are through solicitors’ input and land registry searches, you can either contact them direct or through formal notices and procedures to the tenants, and once on their radar then they’re often willing to step in and pay up and add to the lent capital.
After all this is their security that they don’t want going to pot.
8. Going Legal
So here is the final stage, with a host of information available on how to do this.
One of the biggest angles at this stage with such long leases that you can’t do with shorter interests, is the threat of forfeiting the lease for breach of non-payment obligations. This is drastic, literally ending their lease interest and therefore value, and whilst this is helpful to focus minds, in reality it would never really happen with others stepping in to save the day.
For other classic routes for recovering arrears, it will often lead to a small claims court application, and even when you do have judgements it’s not so simple to then be able to carry out and fulfil.
Oh, and watch out for the legal costs mounting up, which even with a successful claim may not always be fully recoverable.
Therefore in reality, it’s often the threat of legal action that is most beneficial, for example an initial letter from solicitors showing them that you mean business. Hopefully then you can start seeing payments before needing to take further.
Getting The Cash, Reducing the Stress
When you are faced with residential long leasehold owners not paying their dues, don’t panic and think that you suddenly need to go-legal with expensive and sledgehammer type action.
In the majority of cases there will be simpler stages to first go through, and even for those where the extra-mile is required then there are a few other tricks of the trade to look into.
Probably the biggest lesson to learn is good communication, and to have a reality-check with things. Even though payments may be slow, often paying at least something helps to chip away at the debt and head in the right direction.
Need More Help?
Claim your FREE Property Management Pack here – including a 15-point Property Deal Cheat Sheet, and Introduction & Chapter from our amazon-best-seller book, the Property Management Guide.
Please leave comments below with any thoughts and queries.