Debt Recovery Case Study 3 – Residential Service Charges
Case Study 3 – Recovery of Residential Service Charges
How to recover service charges for residential property.
Our client is the managing agent of residential property. It manages a large property portfolio and sought assistance to recover service charge arrears that had arisen on an estate of 90 freehold houses.
Prior to seeking our assistance our client had been using the services of a debt collection agency. The agency had had some success in collecting payment but the process was slow and our client was keen to commence proceedings against those residents who had refused to make payment, sometimes for several years.
Our client was nervous that the cost of legal proceedings would erode the reserves of the management company and that any benefit in recovering service charges would be lost. The challenge, therefore, was to create a debt recovery package that achieved the objective at an acceptable cost and to recover costs from the resident, where possible.
On consideration of the papers, we established that each resident was liable to pay the service charge and any costs associated with its recovery.
To maximise its prospects of recovering costs we advised our client on the content of the reminder letters it should send before it instructed us. We also prepared a Letter of Claim which gave the resident full details of its obligations under the service charge agreement and what costs our client would seek to recover if court proceedings became necessary.
The revised pre-action correspondence ensured that any disputes came to light early and that the potential claim for costs had been communicated to the resident on at least four occasions before proceedings were issued.
The information obtained through the pre-action process allowed us to assess the number of potential claims and therefore agree on a fixed cost for each action. The fixed cost formed part of the claim meaning the client could potentially recover all of its outlay on a successful case.
By approaching us at an early stage in its collection cycle we had the opportunity to advise our client on what sums it could recover under the service charge agreement and guide it on the wording of its reminder letters so as to ensure its claim for costs was well founded and enforceable.
Ultimately, our client achieved its aim of recovering debt and costs from its residents. It also managed to change the behaviour of the few residents who believed there were no consequences to withholding payment of their service charges. When the next years’ service charges became due, less than 5% of residents were late in making payment.
rhw Solicitors LLP dispute resolution team look for creative ways to meet our clients objective and also give guidance on the practices and procedures our clients should adopt to improve their prospects of recovery.