Guidance for credit managers within business utilities on reducing the risk of fraudulent debtors.

COVID-19 has presented many challenges for the utilities industry, including creating several obstacles in determining the validity of a request to process a change of occupier.

The usual criteria for ending a customer’s liability via change of occupier would be formal insolvency proceedings, provision of the relevant surrender of lease or proof of sale documents, often alongside supporting information such as business rates, or contact details of the new occupier or landlord.

However, due to the pandemic and unprecedented restrictions imposed by the national lockdown, there may be a requirement to be less rigid in what is or is not accepted to demonstrate a change of occupier. Establishing who the liable party is will often require both a legal and common-sense approach; Legal Surrender vs Surrender by Operation of Law, or better referred to as deemed surrender. The likelihood is that many SME businesses ceased to trade during the pandemic and were unable to obtain formal surrender. The occupier may have left the premises very suddenly or been unable to keep up with priority bills and so ceased to trade. Not all occupiers will have obtained formal surrender documents and may still technically be a solvent business despite ceasing to trade.

As such, it is important to be aware of what steps can be taken to validate a change of occupier without the usual documents. This will have the benefit of ensuring that the correct entity is being billed as soon as possible and prevents a contentious change of occupier dispute later down the line, as well as unnecessary disconnection proceedings.

Surrender of lease does not necessarily have to be formal. There may be occasions where various factors and circumstances give rise to a surrender, without there being a signed document to demonstrate this. These include:

Legal surrender – this simplifies the matter. Both parties have come to an agreement to terminate the lease, and there is a signed document to confirm this. In the absence of a new tenant taking over, liability will revert to the landlord.

Deemed surrender – this is where challenges will arise in the current climate, and so an objective common-sense approach is required, particularly in the absence of any formal documentation or dissolution. Case law shows that surrender will be deemed to have occurred where both parties’ actions indicate an intention to terminate the agreement.

Checklist

There are various steps that can be taken to determine if a lease has been surrendered. The following checklist will be of assistance when working through an account:

1. Final rent invoice
2. Final business rates invoice
3. Proof of new premise occupation
4. Online resources such as social media or trip advisor can show whether a party has left or is no longer trading
5. Closing bank statements of the occupier
6. Proof of site being up for let/advertised as vacant
7. Site agents visit to establish entity in situ

Be wary

Despite the requirement to be flexible, it is also important to remain vigilant to fraudulent change of occupier requests and keep an eye out for phoenix companies trying to take advantage of the situation.

Below are two common scenarios where a fraudulent change of occupier may be encountered, with suggestions on how liability can be determined.

Scenario one: the lease shows a tenant in place, but it is suspected the lease is fraudulent.

• Ask for proof of rental payments. If a lease is genuine, the tenant will be making payments to the landlord. Even if payments are nominal, for example, in the instance of a ‘peppercorn lease’, they will support the assertion that the lease is valid.
• Send a field agent at a time you know the business is likely to be trading and open, to see who is in occupation. Consider speaking with neighbouring businesses who may be able to provide information regarding business activity.
• If the lease in question is more than 7 years, this is likely to show on the Land Registry.
• Ask for a certified copy of the lease. Whilst this does not necessarily prove occupation, asking a potentially fraudulent debtor to get the legitimacy of a document confirmed by a solicitor may make them think twice.

Scenario two: the lease shows a tenant in place, but the tenant claims they left the property and there is no surrender of lease document – surrender by operation of law.

• This is another scenario whereby the attendance of a field agent may go some way in confirming occupation. For example, are there any possessions in the property? Are the shutters down? Is there a ‘To Let’ sign on the premises? If there are possessions in the property, it may be fair to assume the premises is being used for storage, especially if the business trades online.
• Have the locks been changed, or keys returned to the landlord? A landlord who insists that they are not liable, but has changed the locks, does not show a party keen to continue with the lease.
• Again, are rental payments being made? If a tenant has left and ceased making rental payments, it would appear they have surrendered the lease by conduct, and liability would revert to the landlord.

Taking some of these practical steps, combined with the relevant legal documentation in the form of lease agreements and surrenders, will enable confirmation with a large degree of certainty who the liable party is.

For more information and support with changes to occupiers, or to arrange a confidential discussion about your debt recovery requirements, please call us on 01332 226 474 or email .