Pre-action Protocol – Is it a Lessee’s charter to avoid payment of service charges?
The Pre-action Protocol for Debt Claims (“the Debt Protocol”) came into force on 1 October 2017. It applies to any debt claim where a business (including sole traders and public bodies) is seeking to recover payment of a debt from an individual debtor (including a sole trader). This new protocol will include arrears claims against lessees.
Pre-action Protocol – the aims of the Debt Protocol
The aims of the Debt Protocol are to encourage early communication and exchange of evidence between the parties; to identify, clarify and narrow the issues in dispute; enable parties to avoid court proceedings either by agreeing a debt repayment plan or referring the matter to some form of Alternative Dispute Resolution. It also aims to encourage the parties to act reasonably and proportionately in relation to the size of the debt being sought; and, generally supports the efficient management of any proceedings which cannot otherwise be avoided.
The requirements for the Letter of Claim
Before issuing proceedings, the landlord needs to send a Letter of Claim to the lessee stating:
- the debt amount,
- interest accruing (if any),
- state details of any agreements with the lessee in relation to previously agreed payment plans and why these are no longer acceptable,
- details of how the debt can be paid, and
- the address to be used for the completed Reply Form.
- a copy of the statement of account,
- a copy of the Information Sheet,
- the Reply Form, and
- a Financial Statement Form should be enclosed with the Letter of Claim.
Unless the lessee has explicitly requested that correspondence should not be sent by post and has also provided alternative contact details, the Letter of Claim should be sent by post and can also be sent to an email address, if the landlord has one for the lessee.
The Lessee’s Reply
What has changed now is the requirement to give the lessee 30 days to reply to the Letter of Claim before issuing court proceedings. If the lessee requests additional time to take independent legal advice, the landlord should allow reasonable extra time for debt advice to be obtained. If the lessee says that it requires time to repay the debt, the landlord and the lessee should seek to agree an instalment repayment plan, which is based on the lessee’s income and expenditure. If the landlord cannot agree or is not prepared to accept a lessee’s proposed repayment plan, it must explain reasons for its refusal in writing.
If the parties agree a debt repayment plan, and the lessee starts but then stops complying with such a plan, before issuing court proceedings, the landlord must send an updated Letter of Claim and comply with the Debt Protocol afresh. If a lessee has sent a Reply Form to the landlord but no debt repayment plan was agreed between the parties, then the landlord should give the lessee at least 14 days’ notice of its intention to issue court proceedings. Non-compliance with the Debt Protocol may be taken into account by the court when giving directions for the management of the proceedings and/or making orders for costs.
In summary, the landlord has to comply with the new Debt Protocol before issuing court proceedings against a lessee who is in arrears. The Letter of Claim must be more detailed than has previously been required and a number of documents need to be included with the Letter. If a repayment plan is agreed and the lessee does not stick to its terms, a landlord has to send another Letter of Claim before issuing proceedings. The lessee has 30 days to reply to the initial Letter of Claim and another 30 days should a second Letter of Claim be required. Whilst this is not a lessee’s charter to avoid payment all together, it may nevertheless cause significant delay for the landlord.