The financial threshold for creditors serving a statutory demand on a debtor under the Insolvency Act 1986 is due to be increased. From 1 October 2015 a creditor will need to be owed at least £5,000 of undisputed debt (rather than £750 as at present) before a statutory demand can be served. Also, landlords will be well aware that the remedy of distress - whereby a landlord could instruct bailiffs to seize a tenant’s goods as security for rent arrears - was abolished in April 2014. This new change will serve to further reduce landlords’ options when attempting to recover rent arrears from tenants.
The service of a statutory demand on a tenant is a quick and inexpensive method of recovering rent arrears of £750 or more where there is no dispute as to the debt claimed and particularly when the tenant has assets available. The tenant debtor will have 21 days in which to settle the debt before the landlord creditor can bring insolvency proceedings. The threat of insolvency is a significant one and is therefore often a very effective method of persuading a non-paying tenant to settle its debts promptly.
The rationale for the increase in the limit is to prevent the serious consequence of insolvency for what can be relatively minor debts. The result is that landlords will have fewer remedies available for recovery of rent arrears less than £5,000.
The statutory Commercial Rent Arrears Recovery procedure ("CRAR") was introduced in April 2014 in place of the remedy of distress in relation to commercial tenancies. Distress was a relatively quick, low-cost and effective method of recovering arrears. The CRAR procedure is more convoluted and, as a result, is more expensive and time-consuming for landlords.
After 1 October 2015, where there are rent arrears which total less than the proposed statutory limit of £5,000, the methods of recovery available to a landlord will include forfeiture, a money claim through the County Court, CRAR, and, where appropriate, recovery from a guarantor or by drawing down on a rent deposit.
Landlords must carefully consider their options against the specific facts of the case to assess the availability, effectiveness and potential costs involved in pursuing any particular remedy.