-
7/30/2019 Debt Recovery Procedures for Non-Payment of Rent
1/3
Debt Recovery Procedures for Non-Payment of Rent
This note gives some brief guidance on the remedies open to
landlords of property in Scotland inthese circumstances.
Debt Recovery Procedures for Rent Arrears
A landlord can take steps to recover outstanding rent in the
same way as any creditor who is owedmoney and Court proceedings can
be raised for recovery of outstanding rent. Depending on theamount
due, the action will be a Small Claim (up to and including 3,000) a
Summary Cause (over3,000 and up to and including 5,000) or an
Ordinary Action (over 5,000).
After obtaining a Decree (Judgement) for the sum due, there are
a number of steps that can be takento recover the outstanding rent,
together with interest and Court expenses, if the tenant has not
madepayment.
Charge for payment
After the court has granted a Decree in the landlords favour, we
can instruct Sheriff Officers to serve aCharge for Payment (Charge)
if the tenant has not paid the sums due. A Charge is a formal
noticeserved on the tenant demanding payment of the principal sum
plus interest and expenses, includingthe Sheriff Officers fees. If
payment is not made within 14 days, the tenant is deemed to
beapparently insolvent and an action for sequestration (bankruptcy)
can be raised against an individualor a partnership, or you can
begin winding up proceedings against a company. After serving
theCharge, the Sheriff Officers will normally provide a report
indicating whether there are prospects of
recovering the outstanding sums by another means, for example,
by attaching the tenants goods (asdiscussed below).
Arrestment
Another option would be to serve an arrestment on the tenants
bank account(s). This has the effectof freezing the funds in the
account(s) at the time of service of the arrestment and it prevents
thetenant using those funds until the arrestment has been lifted.
We have previously arrested bankaccounts on behalf of Landlord
clients within hours of receiving their instructions and this has
resultedin the tenant paying all the outstanding sums due to the
landlord. An arrestment can be served at thesame time as the
service of a Charge or independently.
Inhibition
An inhibition is a form of diligence over the tenants heritable
property. When an inhibition has beenput in place, this prevents
the tenant dealing with his property. The tenant cannot sell or
otherwisetransfer ownership of the property or take security over
it, until the inhibition has been lifted and, inpractice, the
landlord will not lift the inhibition until the debt has been paid.
An Inhibition does not allowthe landlord to sell or take possession
of the property. The main drawback with an inhibition is that,
ifthe tenant is in arrears with his mortgage, the mortgage lender
can repossess and sell the property.An inhibition will not prevent
the lender doing so. An inhibition lasts for five years but can
berenewed. An inhibition can be served at the same time as the
service of a Charge or independently.
-
7/30/2019 Debt Recovery Procedures for Non-Payment of Rent
2/3
Attachment
After the expiry of the Charge, we can serve an attachment on
the tenants moveable property. Anattachment prevents the tenant
from removing attached items from the place in which they were
attached.
When an attachment is carried out, Sheriff Officers prepare a
schedule detailing the items that have beenattached and their
value. The Sheriff Officers will determine the open market value of
the attached goods.A report must be given to the court within 14
days of the attachment and the tenant has an opportunity toobject
to the valuation given to the items. The tenant can redeem the
attached items by paying the valuedetermined by the Sheriff
Officers within 14 days of the attachment. If he does not do so,
the SheriffOfficers can make arrangements for the items to be
auctioned.
If the debtor, or anyone else in possession of the attached
items, attempts to remove, sell or otherwisedispose of any of the
items before these have been removed by Sheriff Officers, they will
be in breach ofthe attachment and may be held in contempt of
Court.
An attachment lasts for 6 months, after which the items must be
removed or auctioned, or the attachmentwill fall. All proceeds from
an auction will be put towards the expenses and principal debt plus
interest. If
any articles are unsold, ownership will transfer to the creditor
and the value of those items will be creditedagainst any
outstanding debt.
Money Attachment
After a Charge has expired without payment, Sheriff Officers can
enter a tenants premises and attachmoney and other items like
cheques and postal orders held on the premises (for example in
tills and safes).There is a presumption that any money held on the
premises is owned by the tenant.
Sheriff Officers must submit a report to the Sheriff after the
attachment and the landlord can then apply fora payment order. The
Sheriff will consider any objections to the money being released to
the tenant.Objections may come from people arguing that the money
belongs to them and not to the tenant.Ultimately, the Sheriff must
consider whether or not the attachment is unduly harsh in all
thecircumstances.
If a payment order is granted, this gives authority for the
funds to be released to the landlord. There arerestrictions on the
use of money attachment.
Summary Diligence
If the Lease contains a clause giving consent to registration
for execution (and most Leases do), an Extractof the registered
Lease will have the same effect as a Court Decree. In other words,
the steps that can betaken to try and recover the outstanding sums
on the basis of a Court Decree can also be taken as a resultof an
Extract of the Registered Lease. The sums due would have to be
identifiable in terms of the Lease.Rather than passing an Extract
Decree to Sheriff Officers, an Extract of the Registered Lease
would be
used. The benefit of this is that the landlord can act quickly
to recover outstanding rent and avoid the timeand expense involved
in pursuing Court proceedings. We have used this method to great
effect on behalfof a number of our clients. At the same time as
serving the Charge for Payment we could also seek anarrestment or
inhibition (as mentioned above).
If the current landlord is not the original landlord as narrated
in the Lease, it will be necessary to have theLease sent to the
Court of Session for a section 88 warrant. This currently costs
15.00 to obtain and takesa couple of days to process. This will
authorise the current landlord to exercise summary diligence
usingthe Extract Registered Lease. Before proceeding with Court
action or summary diligence, we wouldnormally send a 7 day Demand
Notice to the tenant prior to any formal action.
Landlords Hypothec
The landlords hypothec is a longstanding remedy, which gives the
landlord security over certainmoveable property on leased land or
in leased buildings. The landlords hypothec has been restricted
-
7/30/2019 Debt Recovery Procedures for Non-Payment of Rent
3/3
substantially by recent legislation. In practice, this right
will be of no use to the landlord unless the tenantbecomes
insolvent.
In that event, the landlord will be entitled to be paid out of
the proceeds of sale of items covered by thehypothec in preference
to other creditors. It is important to notify us as soon as
possible after becoming
aware that a tenant has become insolvent. This will allow us to
send out a notice exercising the right oflandlords hypothec. The
landlords hypothec gives a right in security for any rent that has
not been paid atthe date of insolvency.
Irritancy
If a tenant is in breach of any terms of the Lease, including
provisions for payment of rent, it is open to thelandlord to
terminate the Lease early, and this is known as irritating the
Lease. Most Leases have aprovision covering irritancy. The landlord
must give the tenant notice that he intends to bring the Lease toan
end and the relevant provision often outlines the steps that have
to be taken in order to irritate theLease.
A landlord is entitled to take steps to recover outstanding rent
after the tenant has left the property without
having to enforce the tenants other obligations under the Lease.
The Lease allows the landlord to recoverpossession of the premises,
but it also crystallises the tenants liabilities. This is often no
bad thing if thetenant is not able to pay the outstanding arrears,
let alone meet future rental payments or other liabilities.In the
current financial climate, landlords are understandably not always
keen to bring Leases to an end,given that it might be difficult to
find a replacement tenant. We regularly advise clients on whether
irritancymight be appropriate in their particular circumstances and
take this step where it is in our clients intereststo do so.
Irritancy should always be viewed as a final step and should not be
done without carefulconsideration.
Guarantees
Guarantees can be another useful route open to a landlord. If
the landlord has the benefit of a guaranteefrom a parent or group
company, it is open to the landlord to enforce the guarantee
against that company in
respect of tenants breach.
Conclusion
It is worth mentioning that if the tenant company is in
administration, the landlord will not be able to pursuerecovery
without the consent of the administrator. The administrator is
unlikely to give consent and,although the landlord can apply to the
Court for permission to take action, the Court will give
theadministrator an opportunity to be heard before reaching a
decision.
If a landlord becomes aware that the tenant is having difficulty
meeting rental payments, as with any otherdebt, it is best to act
promptly in order to attempt to recover arrears before the
situation gets any worse.
Every case is different and we are happy to advise on the
appropriate remedies in each scenario to ensure
maximum recovery.
For more information please contact:-
Edinburgh:-
Euan McSherry 0131 474 2309
[email protected]
Kenneth Campbell 0131 474 2419
[email protected]
Philip Knight 0131 474 2402
[email protected]
Glasgow:-
Lynne Calder 0141 228 8194
[email protected]
The information contained in this article is given for general
information only and does not constitute legaladvice on any
specific matter.
