When seeking to recover arrears under a lease, it is often possible to act to recover funds without the need for a court order. If a lease has been registered for preservation and execution in the Books of Council and Session, a creditor can normally move to instruct Sheriff Officers to recover the funds. This procedure is known as summary diligence and can take several forms.
Published earlier this year, the Bankruptcy and Diligence (Scotland) Bill proposes changes to the operation of the law in this area. As explored below, the proposals may assist landlords by making the process for the recovery of rent arrears more efficient while also providing additional protection for vulnerable tenants.
Diligence Against Earnings
An earnings arrestment is a form of summary diligence that may be available to a landlord seeking to recover arrears where the tenant is an individual.
A creditor can instruct a Sheriff Officer to serve an earnings arrestment schedule on a debtor's employer. The debtor's employer then must make deductions from the debtor's earnings and pay these to the creditor.
An attempted earnings arrestment is not always successful. For example, those served with an earnings arrestment schedule may not actually employ the debtor. The Bill proposes addressing this by requiring those served a schedule to inform the creditor that the arrestment has been unsuccessful within 3 weeks. They should also inform the creditor of the reasons why the arrestment has failed.
Providing a landlord with this information promptly should improve the efficiency of the process of arrears recovery. It will allow a landlord to consider alternative options for recovery at an earlier stage.
The arrestment of a debtor's bank accounts is an alternative form of summary diligence that can be conducted against both individuals and businesses.
A creditor can instruct a Sheriff Officer to serve a schedule of arrestment on the debtor's bank. Provided the debtor's account has sufficient funds, the Bank is then obliged to arrest funds up to the value of the debt owed and pay these to the creditor.
Presently, a Bank only has to disclose to creditors the details of a successful arrestment. However, the Bill's proposals would require Banks to disclose that an attachment has been unsuccessful and to set out the reasons why. Banks would have to inform creditors of this within 3 weeks of receiving the schedule of arrestment.
This is particularly advantageous in the case of arrestment as it is competent to make speculative arrests on the 'big four' Banks where the debtor's bank details are not known. Again, this should act to make the process for recovering debts more efficient, allowing a landlord to reassess options for recovering arrears at an earlier stage.
Another means of recovering arrears is through the attachment of money held at a debtor's premises. Available when the debtor is either an individual or business, it requires the additional step of the serving of a charge for payment.
There are restrictions on when an attachment can take place. Attachments cannot take place on Sundays or on public holidays and they can't take place before or after 8pm.
The Bill proposes disapplying these restrictions where the debtor is a trade or business. If passed, it would become competent to conduct an attachment whenever a premises is open for trade or business.
Removal of this obstacle would make the process for recovering arrears more efficient for landlords who at present must make a court application to conduct an attachment outwith the permitted hours.
Mental Health Moratorium
As well as including proposals intended to make the debt recovery process more efficient, the Bill also proposes a mental health moratorium to protect debtors suffering with serious mental health difficulties.
In practice this would take the form of a set period where debt recovery action could not be taken against individuals suffering from serious mental health difficulties.
Key details of the moratorium, such as its length or eligibility criteria, are to be set out in secondary legislation. In the absence of this secondary legislation, it is not yet clear exactly how this will impact landlords seeking to recover arrears from tenants. However, with evidence sessions on the Bill scheduled for later this month, further information on how the Bill will work in practice should soon be available.