Where forfeiture, or the threat of forfeiture, is not available to a creditor owed money by a property owner, there are a number of other options to consider when trying to enforce payment where a debtor has failed to pay a money judgment. The most appropriate option will depend on the very specific circumstances of each case. Our Legal Update from July 2018 “Enforcement options for unpaid money judgments” (see here) provided a brief summary of the different enforcement routes available.

Today we focus on the remedy of Orders for Sale, which although fairly rare, are a very powerful remedy, and like forfeiture, the Courts do grant them.

What is required to use the Order for Sale remedy?

In order to proceed down this route, the debtor must own their own property. If the debtor owns or has an interest in a property, it is possible to secure a money judgment related to the debt against that property by way of a registered charge; this is known as a Charging Order. Once registered, the charge will remain on the property until it is sold. Although the charge does not provide immediate payment of the debt nor does it guarantee payment, it is generally a prudent step to take as it does protect the debt and payment will, in most cases, follow upon an eventual sale of the property. Once a Charging Order is obtained, if the circumstances require and permit, a creditor may be able to force the sale of the property to release payment by way of an Order for Sale. The value of the debt must be no less than £1,000, which is the current set minimum threshold to obtain an Order for Sale.

What is an Order for Sale?

An Order for Sale provides the means to force the debtor to place the property on the market for sale at a price determined by the Court. Once the property is sold, the debt will be paid from any proceeds of sale after the repayment of any mortgage or other existing charge with higher priority.

However, the Court will only grant such an Order where it is reasonable to do so, taking account of the devastating effect it will have on the debtor. As a general rule, the value of the debt will need to be sufficient to warrant an Order For Sale. This does not strictly mean that the debt must be substantial but it does help if it is.

Will the Court grant the Order for Sale?

It is always difficult to pre-judge whether the application is likely to succeed, as this comes down to the discretion of the judge on the day, taking into account various factors and balancing the competing interests of both parties.

One of the most important factors to be considered is whether the property in question is the debtor’s home or an investment property.  The Court will also take into account the following factors when considering if the Order for Sale is the only viable and practical option to release payment where the debt relates to unpaid rent or service charges:

• the value of the property in comparison with the amount of the debt;

• the creditor’s circumstances - is it a management company run by and for the owners of the development or a commercial entity;

• does the creditor have any income stream of its own;

• is the debt required to upkeep the development for all owners and is the creditor unable to do so without it;

• how large the debt is, and whether it has a significant effect upon the ability of the creditor to remain solvent;

• the lack of any real prospect of the owner ever being able to clear that debt or any significant part of it without selling the property;

• the prospect of the debt only ever increasing and thus impacting on all others around the development;

• if the creditor is in real financial difficulty as a result of the debtor not paying the debt, this would put them in a much better position for the Order for Sale to be made.

The Court must take account of all factors in any individual case where we are asking them to make an individual homeless and that is always a difficult decision for the Court. However, if the creditor does not proceed down this road, they often have no real prospect of recovering monies due from the debtor until the property is sold at their whim (which may in some cases only occur following the debtor’s death), if the property is their only asset and the debtor is otherwise “cash-poor” with no other ability to settle the debt.

The Court will weigh up the above issues and may choose not to make an Order for Sale on the first application.  It may be that the creditor has to make further application(s) and only once the debt has increased further. A creditor should therefore embark on this remedy, with the mind-set that this isn’t always a quick or easy process, and it could be a very lengthy process, if more than one application is required.

However, in the last few months, we successfully obtained an Order for Sale for a client on a first application, which related to non-payment of service charges due under the terms of a lease where forfeiture was not available. In this case, there was no mortgage secured on the property. The owner was simply unable to pay or unwilling to accept that he owed it despite a determination of the County Court to that effect. The Courts will therefore grant an Order for Sale on a first application where appropriate.

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com.

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