As the recession looms, small landlords face an increasing battle to get rid of bad tenants who can’t (or simply won’t) pay their rent.

Duncan Farmer, The Mail on Sunday – October 26, 2008

The rising cost of buy-to let mortgages, negative equity and competition from house builders dumping thousands of unsold properties on the rental market are putting the squeeze on the 1.1million amateur landlords who have clambered aboard the buy-to-let bandwagon in the past eight years.

They also face another, even more costly, threat from bad tenants who can’t or won’t pay the rent and as recession bites the problem is set to get even bigger. In the past three months the number of investors seeking help from Landlord Action, a company that specialises in evicting bad tenants, has jumped 25 per cent. ‘As unemployment rises, so will the rate of rent arrears.

It happened in the last recession and it will again,’ says Paul Shamplina, whose company serves 15 eviction notices a day. Because the legal process is so strict and county courts are so busy with rent and mortgage arrears and bankruptcies, it can take up to six months to get rid of a bad tenant.

And even when they do leave, there is little guarantee that a landlord will be able to recoup the arrears. ‘Under the 1988 Housing Act you can’t issue a section eight notice to terminate a tenancy agreement until the rent is at least eight weeks overdue,’ says Shamplina. ‘Although about half will either pay up or move out when a notice is served, the rest opt to go to court, which can take another eight weeks.

Even if a judge orders them out, which is usual in the case of arrears, it can then take six weeks to get a bailiff to forcibly evict them.’ The problem is exacerbated by housing charities and local councils, which advise delinquent tenants to stay put, telling them that if they move out of their own accord they will not be eligible for social housing.

If they are evicted they will become homeless, legally entitled to accommodation. Rent arrears are by no means limited to the bottom end of the housing market. Shamplina recently evicted a tenant from a house in Bishop’s Avenue in Hampstead, one of London’s most expensive addresses, where the weekly rent of £2,500 had not been paid for five months.

Theodore Ogboru, an accountant from North London, has fallen victim to two so-called professional bad tenants in the past year and has lost £16,500 in unpaid rent, a figure that is rising by £1,733 each month.

A 39-year-old accountant, he bought two £700,000 penthouse apartments at 100 Kingsway, a new development in Finchley, in November 2006. While he has let one with no problems, the first tenant in the second one left a year ago, owing £6,600, which has never been recovered.

‘In January I found another tenant, who told me he was a computer programmer and showed me bank statements with a balance of £70,000,’ says Ogboru, who was not told that the tenant had fled his previous flat – in the same building – owing the landlord thousands of pounds.

‘Before he moved in I insisted the letting agent took out a rent guarantee policy in case he didn’t pay me.’ Such policies cost from £20 a month and cover up to five months’ rent as well as the cost of eviction.

Ogboru’s tenant’s previous landlord had successfully reclaimed his arrears under a policy with Homelet, which was, by chance, the same company Ogboru used. The tenant paid a month’s rent in advance and moved in, but never paid the full amount again.

‘He started withholding a couple of hundred pounds each month, but then his cheques bounced and in May he stopped paying,’ says Ogboru. Ogboru asked the agent, Ace Lettings and Sales, of High Road, North Finchley, to claim against the policy, but the firm refused.

Like the tenant, the agent was also a rogue. In April2007, Ace’s founder, Kamran Khan, was jailed for eight months for defrauding tenants and possessing a class A drug, and last December he was banned from being an estate agent.

Although the business still operates, it has never filed accounts and is about to be struck off by Companies House. With help from Landlord Action, Ogboru is taking his tenant to court next month. Leila Hsuan has been managing 60 flats in London on behalf of overseas owners for more than 15 years and has rarely had a bad tenant.

That changed in August when she let a flat in Battersea to a man who passed all the references. However, on the day he moved in, porters at the block recognised him and phoned Hsuan to warn that he had been evicted two years earlier for not paying the rent.

‘I phoned the tenant who admitted it was true but he assured me he would pay my rent of £1,600 a month, but he is now more than two months behind,’ she says. As competition for tenants becomes fiercer, particularly in London’s Docklands, Birmingham and Manchester, Shamplina warns landlordsnot to rush to sign up a new tenant.

‘Do as many checks as you can and if you have any doubts, don’t sign an agreement,’ he says. ? www.landlordaction.co.uk