Debt Collection Charges allocated to Service Charge account

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    Debt Collection Charges allocated to Service Charge account

    Hi All,

    I would like some advice whether the Managing Agent can charge debt collection charges to the Service Charge account for all other leaseholders to have to pay?

    It would appear it was DCA charges however only 9 properties itemised in the statement but split between all 39 to pay.

    Is this correct as we are an RMC?

    Life is full of problems. Often the problem of non-payment of service charge arises due to the service charge bill being delivered to the wrong building on the same estate or put into wrong post box for another flat in the same block ? And many rental tenants in BTL flats tend to bin all junk mail including mail addressed to previous occupants.

    What does the wording in your lease say about non-payment of service charge by the leaseholder ?


      It depends on what the lease says. Is the RMC allowed to include the cost within the service charges? Is the RMC allowed to recover legal costs from the individual leaseholders? If so, why has it not done so?

      If it is valid service charge expenditure, the charge should be reasonable. So you should be asking the MA Who is the DCA? Is there any connection between the DCA and the MA? Is any part of the cost paid to the MA? What work has been done by the DCA? Is it anything other than issue a standard letter?

      9 out of 39 is a high proportion, so you should be asking the leaseholders their reasons for non payment. There may be wider issues involved.


        What the leases allow is the most important factor here, regarding whether ir not all leaseholders can be required to split the cost.

        As for who should pay the costs, that depends somewhat on why the leaseholders weren't paying, and whether or not it was justifiable to involve a DCA.
        If all sums had been demanded properly, in accordance with the lease and applicable law, and the leaseholders still hadn't paid, then any costs involved with chasing the debt should be born by the individual leaseholders (assuming that the leases are well written and alliw this).

        On the other hand, if the leaseholders had a legitimate reason for not paying, the RMC should have addressed this rather than instructing debt collectors and incurring fees that weren't reasonable.
        In this case, it is either the RMC which is responsible (meaning all shareholders, i.e. leaseholders, would have to foot the bill, or the directors would be liable (if the latter was typically the case, few people would be willing to become directors of RMCs/ RTM ).


          Many MAs are tempted by "no win no fee" claims or an offer of a percentage of the fees collected. I know one DCA which boasts a 100% recovery record, which cannot be accurate, The actual cost is usually paid by the leaseholders one way or another. Whilst you will always get one leaseholder who will refuse to pay service charges, 9 of 39 is higher than normal and the RMC should be addressing their concerns. The directors of a RMC are seldom held responsible for their actions, which is a pity, perhaps they would take more care if they were.


            If there has been a change in MA or a move from self management, and the previous regime was lax, I can certainly believe they might have 9 out of 39 late payers. That seems to be around the proportion who don't pay until a reminder is issued.

            As well as protests, another reason for non-payment is likely to be financial hardship; many people don't see service charges as a priority debt, even though I suspect any debt councillor would class them as such.


              Part of a MA's duty is to get to know the leaseholders. He should know which ones pay regularly, which ones need gentle reminders and which ones need to be chased. He should also enquire what reasons leaseholders have for not making payment. There could be a valid reason which the MA could deal with. He should be aware of any with financial hardship and agree payment plans with those leaseholders. It is very rare that appointing a DCA or a solicitor will help a MA, it is more likely to create a strain in the relationship with the leaseholder. What is the point of adding charges to a debt which a leaseholder is struggling to pay?



                I would like to thank all those who have posted replies and find the advice/information helpful in all.

                eagle2 I believe you are spot on with the last point that you make, I don't think the use of a DCA offers anything more than further penalising a leaseholder financially.

                I didn't think they had any more enforcement rights than the MA or RMC in recovering the debt and it would still have to involve the County Court. There it could then be passed to the FTT if disputed, for determination of whether it was payable including any administration charges added.


                  You may also wish to inspect the management agreement to see what duties the MA has regarding debt collection. I recall a case where the MA sent out reminders and issued administration charges claiming that it was a DCA, the Tribunal disallowed the charges and stated that it was part of their management fee. I recall another case where the DCA was a separate company but closely connected to the MA.
                  You are quite right, the DCA cannot take legal action, it is an agent acting for the RMC.


                    If the agent is a new broom, I'd suggest that about six of the defaulters are people who simply don't pay until the final demand. If later payment has been strictly enforced in the past, I would suggest that you. most likely, have a leaseholder revolt on your hands.


                      Is the Managing agent under service contract appointed by the Freeholder or RMC ?

                      The freeholder can use any agents to collect "ground rent" and pay their collection agent. But problem arises if they use a debt collection agent if their ground rent demand is not paid when due.

                      The RMC can use any agent to collect the service charge levy from the leaseholder but its unlikely the cost of collection of service charge arrears can be charged to other leaseholders.


                        There is no indication that the MA is newly appointed but if he is, he should definitely not start by instructing a DCA. Instead he should start by trying to get to know the leaseholders and explaining his policy on debt collection especially if it is different to his predecessor. He should encourage a dialogue between himself and the leaseholders.


                          Originally posted by eagle2 View Post
                          There is no indication that the MA is newly appointed...........He should encourage a dialogue between himself and the leaseholders.

                          You are correct that the MA is not newly appointed however has never encouraged dialogue between himself and the leaseholders.

                          At what point does a debt begin, Is it when demanded or when due?

                          If the lease states 2 payments per year, is it acceptable to demand both payments at the same time?

                          If you believe the answer is yes, is it then acceptable to count the payment, not required by the lease to be paid until 6 months later, as owing?


                            There is a debt when an amount becomes payable and that is either when a sum is due or when it is demanded, whichever is the later. Some MA's issue demands at the beginning of the year for the entire year, that is laziness on their part and it does not mean that the whole year's charges are payable. Their records will be incorrect throughout the year because they will show that there is a debt which is not the case. You have grounds for stating that the MA is not keeping proper books of account.



                              So where their records have incorrectly shown a debt and created DCA charges to be incorrectly applied to their account, how can these illegal fees be recovered?

                              Is it through the small claims court, claimed against the MA, the RMC or the directors of the RMC?


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