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Debt collection could become much dearer


Dealing with problem tenants could become a lot more expensive under changes to the judicial system being proposed by the Government.

Geoff Knight, of debt recovery and collection service CIA, said many landlords would give up on recovering money they were owed from errant former tenants if the new fees scheme was adopted.

A public consultation paper on the new fees was put out last month and submissions close at the beginning of November. The says that the cost recovery levels in the court are too low and current fees do not reflect the registry or judicial effort involved.

But Knight said the Government appeared not to have given enough thought to the impact on tenancies of the proposed increase in fees. 

For example, it is proposed that an order for examination, to work out the ability of a tenant to repay debt, will now cost $180, up from $108, excluding the service fee involved in getting a person to court.

After the first attempt at serving papers to a former tenant, a landlord will be now charged $50 for every new address supplied until the person is located.

Knight said his firm would usually have four or five potential addresses for tenants as people tended to move every seven to nine months.

Landlords will have the option of serving papers themselves to avoid the service fee but Knight said that would open a can of worms if unscrupulous landlords claimed they had served papers when they hadn’t, and arrest warrants were issued accordingly.

“If they don’t turn up at court, as happens in 51% of cases, you apply for a warrant for arrest. It’s $50 to make the arrest, $155 for a solicitor at the hearing and $155 for the solicitor to sign the warrant to arrest application.”

Knight estimated that collection of debt will now cost $1060 in at least half the cases.  “The average tenancy debt is $2100.”

At the moment, his business offers to pay enforcement costs and earns 20% commission on collection. But Knight said that would no longer be feasible. “Our business model is stuffed. How can you charge $500 for a debt of $600 to $800?”

He said landlords would likely give up on recovering debt and focus on getting tenants out of their properties as quickly as they could, to minimise their losses.

But that could change, too. A landlord can currently file a possession order free of charge to evict a tenant from a property. A $200 fee is now proposed for this service.

Tags: geoff knight

Source: Landlords.co.nz

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