Are you sure that your new tenant has no court orders against him related to rental arrears at a previous property? Most landlords would feel relaxed about this, safe in the knowledge that they have obtained professional reference reports, including information registered by the courts, before going ahead with the rental transaction.
But what if a possession order against a tenant, and an award for payment of arrears, are not registered by the court? In such a case, the tenant’s past misdemeanours are not recorded and will not form part of the reference report.
How can this be? It works like this: If a tenant is in arrears and a section 8 notice in terms of the Housing Act is served to bring the tenancy to an end, a court will award possession of the property with an order for the tenant to pay the arrears. The issue is that, unless the agent or the landlord takes further action to enforce the judgment, there is no registration of the debt.
I have questioned the then Housing Minister, Grant Shapps, on this matter and his response was: “The registration of all County Court and High Court judgments is governed by the Register of Judgments, Orders and Fines Regulations 2005 (as amended). Pursuant to Regulation 9(d), where the court has made an order for the recovery of land (whether for costs, payments due under a mortgage, arrears of rent, or otherwise), the judgment will be registered only when a claimant issues enforcement action to recover the money judgment.”
After making some enquiries, I discovered that surprisingly few solicitors are aware of this issue. I have also found that insurance companies that back rent-guarantee schemes, and demand that professional references are taken on all tenants in their schemes, have paid out claims for the same bad tenants on at least two occasions because their previous histories were not disclosed by the referencing companies.
This is a big gap in the system. I am sure many agents and landlords who are awarded possession, with the tenant ordered to pay, believe that the judgment is enough to ensure that defaulting tenants have debts registered against them.
This does not point a finger at referencing companies, because they have no way of knowing if the information has not been recorded. While it is possible to ask the previous landlord, this is not foolproof, as someone hoping to see the back of a bad tenant may be economical with the truth.
The system is clearly wrong, takes no account of the growth of the private rental sector and is of little help to landlords and agents. It makes it possible for bad tenants to get away with not paying rent – and not being found out.
There is a big difference between people who cannot pay and those who will not pay – and there is little point in throwing away money on defendants who simply do not have the funds to meet their liabilities. In such cases, it might be better simply to write off the money and tighten up your credit-control procedures. In the case of ‘won’t pays’, a little legal persuasion might just do the trick.
The threat of bankruptcy, with its associated stigma and knock-on problems related to credit, may be enough to secure payment
Clare Kelly is a Partner at Anthony Gold Solicitors with expertise in debt recovery and other commercial litigation
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