Debt Collection

Published on: Oct 9, 2009

Nothing can cripple an apartment company like unpaid service charges. The insurance company doesn’t care if the person in number 10 can’t rent at the moment. ESB won’t be very caring when you don’t pay for the lights because the guy in number 22 has a problem with paying service charges.

As a director of your management company, you will almost undoubtedly have a few problem owners who can’t or won’t pay. Some of them will have fallen behind years ago and run up a sizeable debt. Pretty soon you have to start looking at what services everyone should lose out on so you can keep the bank account in the black. These problems have to be tackled hard and fast before everyone else starts to suffer.

The first thing you need to solve this problem is resolve. Unless, you, the other directors, your managing agent and your solicitor are very determined to sort it out, it’ll languish and the debts will grow. You need to draw up a plan, be firm with people and make sure everyone knows that’s going on.

The second thing is to issue your service charge demands as early as possible. Give people plenty of notice but remind them that once the deadline has passed, you won’t be so generous. Issue one warning after the deadline has passed but be clear that your next step is to forward their details to a solicitor. If your lease agreement allows you (and most do), charge interest as soon as possible and at the full allowed amount. This can be quite high (up to 20% in some cases) and sends a very strong message that you’re serious. Once stung by this, most people will remember the next year and have a blank cheque waiting for your invoice the following year.

If the invoice, interest and reminders don’t work, you need to hire a solicitor. While any solicitor can do this work for you, several companies have specialised in debt collection and they’re usually a good choice. In our experience, it’s best to avoid the biggest of them because they tend to be slower and less responsive than smaller companies who more appreciate the cashflow. Establish a good relationship with your solicitor, send files at the same time if you can as it reduces their workload (and may reduce your costs). Make sure you keep in regular contact so you can answer any questions and make sure they’re progressing as quickly as possible.

The first thing your solicitor will do is write a legal letter to them informing them that you have reported their debt and that you will initiate legal proceedings against them. The sight of legal headed paper will normally make most people pay. Don’t worry about the cost because most lease agreements allow you to charge it to the debtor on top of the service charge and interest.

If they don’t reply or don’t agree to pay, the next step is for your solicitor to issue a civil summons or civil bill (depending on the size of the debt). This must be done by registered post 21 days before the Return Date. If they choose not to defend it, Judgement papers are issued, a decree is issued and they must pay. If they decide to defend the case (and there are very few ways they can avoid paying), the solicitor applies for a Hearing date and the court proceedings start. The Draft Decree is lodged with the district court office and they must be pay.

In either case, if they refuse to pay, you can ask the Judge to have the Sheriff enter their property and remove items belonging to them. These things can be sold and the proceeds given to the management company to cover the debt. It isn’t usually successful for various reasons so don’t get too excited.

There are several steps after this but they can only be done by the High Court which means the debt must be over €38,093. The judge can rule that the owners income (including rental income) be garnished and given directly to the management company until the debt is cleared. They could also order that the apartment be sold and the debt be cleared like that. This is unlikely to work if the owner has a mortgage over the apartment because they will get first call on any proceeds. It also won’t work if the person is in negative equity since the sale won’t cover their mortgage. The final and most severe is that the judge can rule that the defendant be jailed for non-payment of debt.

How much does it cost?

The initial warning letter will cost about €100 + VAT. It’s worth it though because it’s very effective. They will charge about 10% of the debt as well as other costs such as stamp duty, commissioners fees, registered post and sheriffs fees. These can usually be billed back to the debtor so debt collection doesn’t cost the management company anything. In longer cases, the solicitor may ask the company to pay some or the costs to date but they will usually be recovered later on anyway.

What if it doesn’t work?

There are other things you can do. Once the judge has issued an order, you can publish their name and details in Stubbs Gazette. This will turn up when banks do credit checks in future and can affect their ability to take out loans or apply for credit cards.

You could consider more extreme measures such as removing access to underground car parks, reducing the services to their block (as long as it doesn’t affect other people) and even note their policy on the block insurance. This means they cannot claim against the management companies insurance policy and could create a lot of hassle for them with their bank.

How long does it take?

The easiest case is a debt for a small amount which is undefended in the district court. Even this can take 4 – 6 months. Circuit courts, high courts and contended cases all take longer and the costs are higher.

Some further info on the issue of Debt Collection and the legal side of the process is available from a presentation given to our November 2014 meeting

DEBT-COLLECTION-FOR-OMCs-2014-PDF

DEBT-COLLECTION-FOR-OMCs-2014-Powerpoint

For a quick guide to the important things to be done when it comes to Debt Collection by Owner Management Companies also check out the links below

AON-Debt-Collection-OMC-Good-Practice 2015-02-11 PDF

AON-Debt-Collection-OMC-Good-Practice 2015-02-11 POWERPOINT

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