What is a charging order?
A charging order is a method of enforcing a judgment or order obtained in the County Court or High Court against a debtor. It can be used where the debtor (the person or organisation who owes the money) owns a property. You must have a court order first.
When the judgement debtor sells the property, the money owed (and effectively protected by the charging order) is then paid to the judgement creditor (the person who is owed the money) plus interest from the date of the charging order, out of the sale proceeds. A charging order is effective when registered against the property at the Land Registry.
What are the advantages of a charging order?
The main advantage of a charging order is that, assuming there is sufficient equity in the property on sale, the creditor will know they will receive the money (together with interest) owed when the sale is completed. Another advantage is that interest will continue to accrue on the judgment sum until the property is sold.
Once a charging order has been made, you can apply to the court for an order for sale.
What are the disadvantages of a charging order?
A charging order does not give you, the judgement creditor, the right to force a sale without going to court. This means the judgement creditor could have a long wait of many years before they receive payment. For this reason, charging orders are generally appropriate only if a large sum of money is owed, and the debtor has no other high value assets that could be sold to pay the debt.
There is also a risk that there could be insufficient equity in the property to cover the debt when higher ranking creditors (such as a mortgage lender) are paid off. However, in the current market of rising property prices and low interest rates, this is unlikely.
How to apply for a charging order
If you need to apply for a charging order in respect of a debt owed to you, the application is a 2-stage process involving, firstly, applying for an interim charging order, and then a final charging order. An interim charging order effectively prevents the debtor selling the property before a final order is made.
The first stage is essentially a paper exercise without notice being given to the judgement debtor. This stage involves an application to the court for a charging order on form N379, which can be obtained from the court office or downloaded from the Court Service’s website. The application should contain certain information as follows:
- The name and address of the judgement debtor;
- Details of the judgement/order to be enforced (it is good practice to exhibit a copy of the judgement or order to the application);
- The amount of money owed under the judgement/order at the date of the application;
- If the judgement debt is payable by instalments, the amount of any instalments which remain unpaid;
- Details of the judgement debtor’s interest in the property, and the property itself. You can apply for Office Copies from the Land Registry confirming the debtor’s name and details of the property;
- The names and addresses of the persons who need to be served with the interim charging order, including the judgement debtor and any known creditors.
The application should normally be made to the court which made the judgmeent/order you are seeking to enforce. If you have obtained more than one judgement or order against the debtor, you can apply for a single charging order in respect of all of judgements/orders.
Once the necessary formalities are complied with and the judge is satisfied, an interim charging order will be made.
Registering an interim charging order
Once an interim charging order has been made, you should apply to the Land Registry to have this registered by way of a unilateral notice to be placed on the Property Register of the judgement debtor’s property. The application should be made on form UN1, which can be obtained from the Land Registry or downloaded from the Land Registry website. Note that a fee is payable.
Obtaining a final charging order
Once an interim charging order has been made, a hearing will be fixed at which a judge will consider whether to make a final charging order. At least 21 days before the hearing, you must serve copies of the interim charging order, the application notice and any accompanying documents (such as the Office Copies and a copy of the original judgement or order) on the judgement debtor, and any other known creditors (eg. mortgage lenders).
The judgement creditor should file with the court at least 2 days before the hearing (or produce at the hearing itself), a certificate of service confirming that the judgement debtor and any other known creditors have been served with a copy of the interim charging order.
Objecting to an interim charging order
If the judgement debtor (or another creditor) objects to the court making a final charging order, they must provide the court and the judgement creditor with written evidence explaining why they object, at least 7 days before the hearing. In practice, mortgage lenders rarely raise any objections.
The court will either make a final charging order, discharge the interim charging order, decide any issues in dispute where the judgement debtor or a creditor has raised an objection, or, if necessary, direct a trial at which such issues will be heard.
Steps which must be taken after the hearing
If a final charging order is made, you must serve a copy of the final charging order on all those on whom the interim charging order was served. You can also register the final charging order with the Land Registry (though not strictly necessary if the interim charging order has been registered).
Note that the cost of registering a final charging order cannot be recovered from the judgement debtor if the cost of registering an interim charging order has already been claimed.
Discharge or variation of a charging order
An application can be made by the judgement debtor, or anyone else with an interest in the property, to discharge or vary a charging order. The application must be made to the court where the charging order was made, and must be served on all those on whom the charging order was required to be served.