When faced with an unpaid debt, whatever then nature of the debt, we always encourage creditors to look at options for settlement before taking matters to court. Often by throwing people a lifeline you can negotiate a settlement without incurring further legal costs and often the debt will be settled much quicker.
When negotiating for the recovery of rent arrears there are some important factors to consider before embarking on negotiation efforts, including the amount of the debt, debtor’s circumstances, interest payable, landlord’s creditors financial position, and length of time to recover the debt.
Often both parties have unrealistic expectations as to the time to be allowed for settlement and our role is to manage those expectations and encourage both parties to reach a viable settlement agreement and avoid court proceedings.
Case Study
We are instructed to negotiate settlement of a sizeable debt in full. The landlord creditor wants to push for the full amount owed to be settled in two immediate payments, one from each debtor as joint tenants of the property. However, one debtor is not currently in employment and the other was on a low income, therefore it is unrealistic to achieve lump sum payments in these circumstances.
Given the debtors’ circumstances, the prospects of recovery through enforcement methods are also limited. We could of course obtain an attachment to an earnings order against the employed tenant but given the low income, the amount likely to be awarded would be low.
With the unemployed debtor, the only real options would be instructing a High Court Enforcement Officer. However, they would likely look to negotiate a settlement on the doorstep, so why incur the cost of going down this route if we have the tenant’s attention and the opportunity to negotiate a settlement?
The debtor makes a very low offer of just a few pounds each month, which would mean the debt would take decades to clear, which was clearly unacceptable to the landlord creditor.
To reach a viable solution for both parties, we would calculate the amount of the debt divided by 6 years (the number of years open to a creditor to enforce a County Court Judgment) then by 12 to work out the monthly instalments needed to clear the sums owed in good time before that deadline.
We would then put this to the debtor and make it clear as to the risk of increased costs should enforcement methods be required.
The debtor responds with an increased offer to £100 per month. Having considered the prospects of recovery through other means the landlord creditor accepts the offer. The landlord has managed to re-let his property so has secured a steady financial income again.
This is a fictional working example based on the many cases that the team deal with at Woodstock and demonstrates the importance of knowledge about the financial situation of all the parties, and the enforcement methods available.
The next and final step is also very important – drafting the settlement agreement. It is important that the agreement is entirely clear as to the detail of the agreement reached, covering everything from when the payments will be made, how they will be made, and the implications of the payments being missed.
A top tip with this sort of agreement is to make sure it is carefully drafted, to include a clause to vary the agreement should the judgment debtor’s financial situation improve (with the evidence required on a routine basis as to their financial status) or provide an incentive to clear the debt earlier i.e., a reduction in the debt owed or reduction of interest payable on that debt.
Finally, careful monitoring of the payments is needed, and swift action should any payment be missed.
