The snail-like court system is letting down lenders and renters

Logging on to LinkedIn in the last few weeks, my feed has been filled with landlords, lenders and solicitors highlighting the time it is taking to gain possession of properties. 

That’s for the usual variety of reasons we see from the property companies we work with: from needing to sell to trespassers gaining possession illegally. Stories of 18 months to gain possession of a property are not uncommon and with interest rate hikes following the end of a fixed-term deal, landlords and lenders are finding themselves in a tricky position. 

In this position, what’s the right thing to do for a lender to recoup its loan?

As receivers, our primary duty of care is to the lender and to repay their debt in full in whatever way is best to achieve that goal. Sometimes, that’ll involve making an improvement to the property, such as to gain possession of it and sometimes this is the only way to repay the bank’s charge in full. 

Receivers do have some tools at their disposal which may result in possession being gained a lot faster than initially thought. 

Firstly, if the borrower has an ongoing relationship with the tenant then they may be able to assist in gaining possession in a more comprehensive manner. Highlighting that the borrower may be in a worse position financially may also aid in provided requisite documents to issue a section 21 notice which whilst not always successful sometime does gain possession in two months. 

Alternatively, if the tenancy agreement states that the lender can use a section 8 ground 2 provision to gain possession of the property then this is a much quicker route to possession as there does not need to be a fault by a tenant. Having a copy of the assured shorthold tenancy on file is paramount for all lenders and to insist on this clause prior to providing consent to the tenancy will reduce irritations should a default occur.

Finally, offering a tenant incentive to leave may be appropriate. Whilst not always possible and sometimes the cost is not refundable on the loan this may mitigate time and costs associated with going to court. We have had some success with this over the years but with rental increases across the board, tenants are more wary of taking this offer. 

But while that’s all well and good for some lenders, it doesn’t address the fundamental problem in the court system.

Court backlogs definitely started in COVID times, with some hearings currently taking six to nine months to gain a hearing date. Once the court has granted the order, it can take up to four months to get a bailiff appointment and then the breathing space order comes through which can be in perpetuity, or every adult in the house can apply in succession lengthening the process further. This whole process can lead to around 18 months before the property can even be marketed. 

We all know that the court system in the UK is overrun and that there is little sympathy for the stereotypical “greedy landlord.” But with a housing shortage, and the majority of buy-to-let investors doing a good job in providing quality homes to tenants while struggling to pay their mortgages, clearly the government should be doing more to support the private rented sector (PRS) keep homes available. 

If we want to keep capital in the UK’s property market, making it truly investible and therefore maintaining the homes we have and facilitating more into the market, sorting out the court system is one important but often overlooked way of achieving this.