Rent arrears can occur at any time.
Around Christmas time is a typical period for rent arrears and as a landlord if you have not had an incident of rent arrears, you have been very luck up till now. But rent out your property for long enough and to enough tenants and your time will surely come.
Failing to pay rent on time or at all is one of the most common problems that landlords have to face and it is one of the main risks to your profitability.
For a landlord with a portfolio of properties, risk is spread and minimised. With one or two properties in arrears, that’s only a small proportion of your total rental income if you have 5, 10 or 20 income producing properties. This will reduce overall profits but it won’t be a total disaster. But if you have just one property, you risk losing all your income if the one tenant defaults and this can put you under severe pressure and stress if you have a mortgage to pay.
The National Landlords Associated (NLA) conducted a survey of landlords recently which showed that around 40 per cent were earning just enough income from their properties to break-even after interest and other payments each month. This means that many landlords are vulnerable in the short term if rent payments are late or start to be missed altogether, and if they have a tenant from hell also doing damage to their property it can spell disaster for their buy-to-let business.
There are quite a few things that you can do as a landlord to minimise your chances of being a victim of rent arrears. You can never eliminate the possibility entirely as sometimes the situation is out of your tenant’s control, for example illness, redundancy and marital break-up which all have an impact on a tenant’s ability to keep up with their rent payments.
The process you use when verifying and selecting your tenants is perhaps the most important one you carry out as a landlord. It’s far better to avoid problem tenants in the first place than try to deal with the problem once they are your tenant.
For a comprehensive guide on how to verify and select your tenants read this guide at TenantVERIFY: www.tenantverify.co.uk/tenant_screening.htm
The Landlord-Tenant Relationship
Renting property is a business and needs to be kept on a business footing, always treating your tenants fairly but firmly as customers. This way you can take immediate action without encumbrances if things start to go wrong.
You’ve just got to accept that the tenant “owns his own home” and to some extent you need to overlook minor infringements of your own standards; stay calm, cool and collected when you may be fuming inside, stay courteous, professional, and in control.
In extreme circumstances the one thing to bear in mind, the one thing that keeps you calm and allows you to carry on, is that one day, assuming you know how to go about it properly, this tenant is going to pay: pay for all damage he caused or the rent he owes you, because you will pursue the matter tenaciously, through the courts if necessary, and get back every penny.
More often than not though, it need not come to that if you handle the situation properly.
Remember, most tenants (around 95% in my experience) are good to excellent. They look after your property and pay their rent on time. If there are issues they will respond if their misdemeanour or lease rule oversight is respectfully pointed out to them.
A quiet word and a business like letter (to put it on record), pointing out their breach of the rules and its consequences, will usually bring the tenant into line and prevent any escalation of problems in the future. If this does not work, and the tenant will not listen to reason, then you have a problem tenant on your hands and the relationship may need to enter a different phase. You need to learn how to deal with difficult tenants and there are several other articles here to help you do that.
Developing a good business-like working relationship with your tenant, and often this means keeping contact to a minimum, giving them their personal space, is the key to being a good landlord, and successfully making money from the venture. Having the landlord turn up every five minutes just reminds the tenant that they are a tenant, and that at the end of the month another rent payment will be going out of their bank account into yours.
Keep an eye on rent payments
I always insist on rent payment by banker’s standing order. This has many advantages and very few tenants will refuse to do this, excepting perhaps Housing Benefit (HB) and bed-sit type tenants.
You can then check your bank statement regularly and make sure the payment is made each month / week etc. If the rent is paid weekly your tenant is entitled to a rent book by law. This is simply a record of payments received and can take many forms, even a simple Excel spread sheet record would suffice, even emailed to your tenant if appropriate.
There are now quite a few landlord software management packages available at very reasonable cost, which help you monitor your tenants, set reminders and handle accounts. See here: www.landlordzone.co.uk/directory/enhanced-directory/software
Act Quickly and Professionally
If a rent payment is missed then you should take immediate action but avoid an aggressive, demanding response. Make some polite enquiries with your tenant/s to see if they are aware of the situation – there could be a perfectly reasonable reason why the payment was missed, such as an admin error or oversight.
If the tenant is open with you and there is a genuine hardship then you should offer to help. Offer to assist with a Housing Benefit Claim. You could also offer to temporarily re-schedule rent payments.
All this will assist you if you need to apply for a possession order in due course as the courts expect you to deal with the situation reasonably. Don’t forget to document everything – everything you say and agree should be put in writing to your tenants keeping copies which will provide vital evidence in later.
Immediately there is a problem you should write to your tenants, send a Rent arrears Letter, Rent Schedule, section 8 notice, and section 21 notices. See our article “Dealing with Rent Arrears”
Have a Frank Discussion
Once the situation settles down and looks like becoming long-term you need to have a frank discussion with your tenant to determine what happens in the future.
The tenant/s won’t cooperate with you on this then you have no option but to start the formal process of applying for possession.
If your tenants are unlikely to be in a position to afford the rent going forward then it may be they will agree to be evicted and cooperate with this. This may be a necessary process if they want to be re-housed by the local authority. The local authority will always advise tenants not to leave their accommodation voluntarily and then there is no obligation for the authority to re-house them.
Alternatively, your tenant may be willing to surrender their tenancy and leave before the fixed term comes to an end. This may be a good solution for all concerned. It may even pay you as a landlord to offer some sort of financial inducement for your tenant to leave, as the alternative of going through the eviction process can be quite expensive.
If you do accept a surrender of the tenancy early, make sure this is well documented in the form of a letter of surrender and acceptance, or better still a full deed of surrender documents.
If the tenant resists eviction, even when little or no rent is being paid, they can only resist for so long. The section 21 procedure gives you an automatic right to possession if you follow the rules and avoid making technical errors with the documentation.
By Tom Entwistle, LandlordZONE®
16 January 2014
If you have any questions about any of the issues here, post your question to the LandlordZONE® Forums – these are the busiest Rental Property Forums in the UK – you will have an answer in no time at all.
©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.