An Overview of Developments with Order for Sale Litigation

The domestic property market over the last 10 years has meant that orders for sale have been off limits for some time. However with improvements in home values across most parts of the UK, the time is right to review existing charging orders and look at the prospect of getting paid using an order for sale application.

Order For Sale – Increasing Viability

In our experience, enforcing charging orders by way of order for sale has a high success rate and only a very small number of debtors are actually ever evicted.  Low eviction rates are largely down to the steps taken by proprietors, as they do all they can to avoid losing their property.  More often than not, payment arrangements or settlement is achieved including a recovery of the legal costs associated with the proceedings.

The Process

The Claimant should make a demand for payment including the threat of proceedings via correspondence. It is often the case that several letters are sent to the Defendant in an attempt to come to a payment arrangement.

If the Defendant fails to come to an agreement, the Claimant must gather and present evidence to the court in respect of its claim. This includes obtaining a property valuation and identifying the amount of security held by other creditors.

The outcome of proceedings can vary, however the court has a duty to protect the interests of creditors (particularly when other methods of enforcement have failed) and therefore results are invariably advantageous to the Claimant provided that the process has been followed correctly.  The final hearing usually results in either a suspended order for sale on terms of repayment or an order that the property be sold so that the debt can be paid in full.  If an order for sale is granted, a creditor is then expected to take the steps necessary to enforce the order: taking possession, securing and insuring the property, marketing, achieving a sale, dealing with the conveyance and distributing funds.

Developments resulting in increased viability – the size of the debt owed to the Claimant

The minimum threshold for which Order for Sale proceedings can be brought is currently set at £1,000.00 as per the Charging Orders (Order For Sale: Financial Thresholds) Regulations 2012.  Whilst this may be the case, it is important that litigants consider what other methods of enforcement are available to them before launching in to order for sale proceedings.  For example, if the debt is £1,500.00 and the debtor owns other assets to a similar value then the court would expect the claimant to instruct a bailiff or High Court Enforcement Officer to levy on those assets before enforcing a charging order.

The case of Pacman Lucas Limited – v – Mentor Towers Limited (2010) demonstrates the feasibility of commencing order for sale litigation where the debt is relatively small.

Mr Justice Coulson commented that it was “potentially dangerous for a court to identify any hard and fast rules that seek to link the size of the debt with the ability to obtain a charging order or an order for sale. Who is to say when a debt is “small”? A debt of £1,000 will mean very little to a large commercial concern, but for a small trader it might be the difference between bankruptcy and solvency.

He further commented, “In my judgment, the size of the debt, and its value relative to the debt, are matters which should be taken into account in the exercise of the court’s discretion under CPR 73.10. But they are only two factors, along with the parties’ conduct, the absence of any other enforcement options and the like, for the court to weigh in the balance.

Matrimonial Home Rights and OFS

Although the viability of commencing an order for sale claim is generally increasing, a factor to be aware of is matrimonial home rights.

These rights give protection to a husband, wife or civil partner under the Family Law Act 1996 where the matrimonial home is owned by one spouse but the other has a right of occupation. Registration of home rights does not prevent a mortgagee from issuing proceedings for possession of a property or a charge holder from issuing OFS, however, the Civil Procedure Rules require notice of any possession proceedings to be served on the person with the benefit of a home rights notice.  This in turn, may result in the spouse making a clam in respect of his or her beneficial interest that may affect the equity available for creditors.

When such an interest exists, creditors should make contact with the relevant party to ensure that their interest does not invalidate any claim – before proceedings are issued.

Summary 

With a decrease on the number of homes in negative equity and the value of homes in the UK continuing an upward trend, the viability of pursuing an Order for Sale has increased.

Providing other methods of enforcement have been considered, an Order For Sale can be granted for relatively ‘small’ debts.

Although the viability of commencing an Order For Sale claim is generally increasing creditors should always be aware of matrimonial home rights.

 

Should you require any further information on this article, please contact Dan Tate at Greenhalgh Kerr direct on 0333 200 5208 or via email at daniel.tate@greenhalghkerr.com.