Using the previous landlord’s escrow account?

Using the previous landlord’s escrow account?

12:05 PM, 9th September 2021, About 2 months ago 5

Text Size

I purchased a property with a sitting tenant. The vendor (previous landlord) set up an escrow account as insurance against rent arrears. For various reasons I decided to give the tenant the benefit of the doubt as I was aware of some issues that were in the process of being resolved. The tenant is now receiving some housing benefit, but we are almost 6 months along and they still have some arrears to pay off.

The access to the escrow account expires soon and I have decided while I can to use it to bring the rent up to date. However, I am advised by my managing agent that this will reset the clock in terms of the amount of arrears required to issue a section 8.

A colleague has advised me that using the escrow account may not equate to the tenant paying their arrears, as the money is not theirs. In other words, the tenant will still technically owe the outstanding rent, even though the payment from the escrow account has made up the shortfall.

I cannot find any information anywhere to confirm this, indeed I am doubtful that this is the case. I would be grateful to hear from anyone who has experience with this.

Thank you

John



Comments

by Ian Narbeth

13:02 PM, 9th September 2021, About 2 months ago

Hi John
It all depends. What are the terms of the escrow? Who is holding the money?
Whether or not the tenant will still owe the arrears (and I would expect that taking the money will reduce the debt) it is best to take the money now if, as you say " access to the escrow account expires soon".
Did you take legal advice when you acquired? If the tenant has been contributing to the escrow account, that could get messy as you get into issues concerning deposits and the Tenant Fees Act.

You describe the tenant as a sitting tenant. Do you mean a Rent Act protected tenant or just the "existing tenant"? "Sitting tenant" usually means a tenant with security of tenure, i.e. not with an AST.

by john luckit

14:43 PM, 9th September 2021, About 2 months ago

Thank you for your swift response Ian.
The previous landlord (vendor of the property) put their own money into an escrow account by agreement with her, and our, conveyancing solicitor. It was a condition of sale. The tenant has an AST. The tenant had some financial difficulties but these are being tackled, in part by sorting out housing benefit, with the support of the management company. I intend to use the appropriate amount to clear the arrears before the account is closed. I want to give the tenant a chance to get back on track and not lose their home. I just wanted to clarify whether the source of the money makes any difference. That said, I do want to give this tenant a chance and if the clock is reset, then so be it. The tenant does not know the escrow account exists and is doing their best to pay off the arrears.

by Ian Narbeth

15:16 PM, 9th September 2021, About 2 months ago

OK, understood.
In other words, the previous landlord was providing some security for payment by the tenant of the rent. I would need to see the terms of the escrow to advise fully but almost certainly you should take the money now. I would expect it to reduce the tenant's arrears since otherwise it is a windfall for you.

by john luckit

15:29 PM, 9th September 2021, About 2 months ago

Thank you. So should I assume that the arrears being cleared effectively resets the clock, even though the money has not come from the tenant?
I have avoided taking the money up till now, but it makes no sense to lose the opportunity.
Thanks again for your help.

by Ian Narbeth

16:00 PM, 9th September 2021, About 2 months ago

John, it rather depends on the terms of the escrow. You might, tactically, not tell the tenant for the time being and keep the tenant under pressure. However, if your tenant finds out it will damage the relationship.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

BECOME A MEMBER