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View Full Version : What interest rate to use?



briandjackie
22-01-2009, 04:09 AM
Hi,

My tenant is constantly late with the rent and has just paid Decembers, so putting aside the 14 day grace period, how do I go about calculating the interest. I realise with rates as low as they are it will be a a small amount but it is more as a form of incentive to reduce her arrears. Until the Section 21 licks in.:). The AST does not make for provision for 'administration fee' for sending reminder letters (live and learn)

We copied the wording for the AST from a relative and it states 4% above the base rate for LLoyds-TSB but what is the rate? Surely it is not the Bank of England rate as we could have just said that. So is it the rate they use for lending or borrowing? Highest or Lowest?

Once I have the right percentage to charge, how do I calculate?

% x Rent = interest due for a year divided by 365 to give a daily rate?

Advice appreciated

Brian

Reading_up
22-01-2009, 07:13 AM
Brian,
You should change you AST to give a rate that you are able to find and this will remove any uncertainty. You have to use the rate stipulated in your AST with the current tenant. You can not just charge any rate to the T as they will claim it is unlawful, due to not being prior informed.

To make it easy why not use the rate the county court use (8%) when doing future AST agreements.

Sorry can't help with what Lloyds-TSB use.

Ericthelobster
22-01-2009, 07:51 AM
We copied the wording for the AST from a relative and it states 4% above the base rate for LLoyds-TSB but what is the rate? Surely it is not the Bank of England rate as we could have just said that.No, it's just what you've said - it's the base rate for Lloyds-TSB. It's not likely to be vastly different to the BoE one, but you still have to use the rate that you've described in the AST agreement. Just contact the bank and ask.

My agreement is the RLA one, and that specifies the Royal Bank of Scotland base rate. Since the base rates of individual banks are much less readily available than the BoE one, I have no idea why that isn't routinely used for this purpose. I once mentioned it to the RLA and they didn't seem to have an answer.

Having said that, with interest rates so low it's barely worth the aggravation to calculate the amount - it certainly isn't going to have any form of deterrent value. If your agreement specifies it's permitted, you're more likely to get results by charging them a fee for writing reminder letters.


Once I have the right percentage to charge, how do I calculate?
% x Rent = interest due for a year divided by 365 to give a daily rate?Sounds about right. You have to calculate the interest due for each overdue payment separately; then if the tenant makes a part-payment at some point you have to allow for that. Hence it can be pretty awkward to calculate.

mind the gap
22-01-2009, 09:28 AM
This thread on the subject may be of interest to you:

http://www.landlordzone.co.uk/forums/showthread.php?t=15721&highlight=Emma

Lawcruncher
22-01-2009, 11:21 AM
The law does not allow damages for breach of contract to exceed the loss sustained. Any provision in a contract that requires a party in breach to pay a sum in excess of the loss sustained by the party complaining of the breach is a penalty and unenforceable.

It is generally accepted that a reasonable rate to charge interest is 4% above the base rate of a major clearing bank. If you try to charge more you run the risk that the rate is declared penal and that you will not be able to collect any interest at all. The purpose of charging interest is to compensate the landlord for the interest he would have earned if he had put the rent on deposit and not to make a profit. The base rate of any bank is easily ascertained by Googling, looking in a newspaper or simply dropping into the bank and asking.

Provisions requiring the payment of a fixed sum for the administration involved in chasing late rent are also liable to be declared penalties. Letting property is a business like any other and you cannot pass the costs of administration on to the customer - you have to factor it into the prices you charge. Chasing rent arrears is part and parcel of the business of being a landlord. It is of course perfectly acceptable to provide that a tenant must pay any legal fees properly incurred by the landlord in connection with rent arrears.