Questions relating to charging orders and orders for sale
This article discusses some of the common questions asked by those who are looking to obtain charging orders and orders for sale.
I own my own business. An ex-customer owes me a significant sum of money. I have a Court order for the sum owed but he still hasn’t paid me. I know he owns property in London. Can I place a charge on it?
If he has not paid in accordance with the Court order, you could apply to the Court for a charging order over his property (once you have confirmed he owns it by checking the title at the Land Registry). However, you should consider whether this is the best method of enforcement to recover the sum owed.
Whether a charging order is granted is at the Court’s discretion and they will consider all the circumstances. Generally, if the documents show that the debtor has failed to pay his debts when they were due, and he owns or co- owns the property that is to be charged, the Court will grant a charging order.
There are two stages of obtaining charging orders: the first is to obtain an interim charging order and the second: a final charging order. The procedure is set out in CPR 73. The interim charging order application can be made without notice to the debtor and is considered by the Court without a hearing. If all is in order, the Court will generally make an interim charging order (which should then be registered at the Land Registry against the title of the property) and will list a date for the final charging order hearing.
At the final hearing, the Court may do any of the following: make the final charging order, discharge the interim charging order, rule on any issues in dispute between the parties, or direct a trial of any issues and give directions.
Once I have the charging order, will he be forced to pay me?
Unfortunately, you will not automatically receive payment. A charging order means that the sum is secured against the debtor’s property, but there is no guarantee when you will receive those sums. You need to register the charging order against the title of the property at the Land Registry to protect your security.
When he comes to sell the property, the charge will need to be settled from the sale proceeds (providing there is sufficient equity once any other charges registered before yours have been paid).
I think he owns the house with his wife. Does that make a difference?
If the property is held jointly, you may still be able to obtain a charging order; although there are likely to be difficulties. On the assumption that the debt is his alone, the charging order will only apply to his share of the beneficial interest in the property. Whether you receive payment on a sale will depend even more on the level of equity in the property and amounts of any charges with priority over your charge.
I doubt he is planning to sell the house any time soon. Can I force the sale of his family home?
You could apply to the Court for an order for sale of the property to force a sale at any time. This is only worth doing if there is sufficient equity in the property to satisfy all charges, including yours. You should consider market conditions when contemplating the timing of forcing a sale.
An application for an order for sale is made under Part 8 of the CPR and a copy of the charging order and any other written evidence must be filed with the claim form. The Court will then list a date for the hearing.
The Court will consider whether to make the order for sale at a hearing, taking into account all the circumstances, including any prospect of the debt being paid by other means, the size of the debt (an order will not normally be granted where the debt is relatively small compared to the value of the asset) and who occupies the property, particularly whether children live there.
If the property is jointly owned, the Court will consider the impact on the co-owner being forced to sell their interest in the property against the impact on you if the property is not sold to pay the sum owed.
What happens if I do obtain an order for sale?
The debtor will be given a final opportunity to pay the sum due and the order will set out the date by which he must make payment. The order will also set out what happens if he does not pay i.e. that the property can be sold and for what price). The order will also set out other practical details, such as who has conduct of the sale (usually the creditor/their solicitor) and when the debtor must give up vacant possession of the property.
Will I get my money first?
The proceeds of sale must be allocated in the following order:
- Costs and charges of sale.
- Charges with priority (i.e. any mortgage/s).
- If the property is jointly owned, the co-owner receives their share.
- You get the sum owed to you.
- Any balance goes to the debtor.
As there will be other charges payable before the sum owed to you, it is imperative to check whether there will be sufficient equity in the property to settle the sum owed prior to pursuing this route.
How long will it take?
How long the whole process will take depends on many factors, but one certainty is that this is not a fast enforcement process. Not only do you have to go through the Court procedure for obtaining an interim and final charging order, you then have to make an application to the Court for an order for sale and wait for a Court hearing date to be listed. This process is likely to take several months, at the very least.
Once you have obtained the order for sale, you then have to go through the process of selling the property. Much will depend on the location and state of the property, as well as the market at that time as to how long the process takes from the point of receiving a suitable offer for the purchase of the property through to completion.
This article was first published by Practical Law Property Litigation.