Residential Tenancy Rent Arrears
If you take the precautions outlined in 20 steps to Successful Landlording you can considerably reduce the risk of rent payment problems. However, you can never eliminate the risk entirely, and sometimes financial problems go beyond your tenant’s ability to control.
If you are wise you will insist that tenants pay by Bankers Standing Order. This eliminates anxious waiting for cheques that never arrive, or worse still, tramping the streets collecting rent.
Monitor Your Bank Account
You need to continually monitor your bank account to ensure that payments have been made on time. These days you can do this by telephone or using an Internet link. If you don’t do this, it could be up to one-month before you find out that a payment has been missed, and that’s too long to delay.
If payments are missed you need to be able to prove that rent has NOT been received – proving a negative can be difficult. Your bank statements are key here – make sure that the payment references are – Tenant’s Name and House number. e.g., Jones-247
When you do a rent payment schedule (Excel spread sheet or print-off from your Management Software) you can show a pattern of payments, and missed payments, backed by bank statement evidence, which will satisfy the judge in court.
Take Immediate Action
Rent arrears need immediate action: (1) to let the tenant know that you take it very seriously and that they just cannot get away with it, and (2) to take appropriate steps at an early stage.
You must quickly establish why the rent has not been paid. It’s quite possible that the bank has not made the payment, or the tenant has overlooked his account balance or has switched accounts, forgetting to re-instate the standing order payment. Or, alternatively, if you accept cheque payments, your rent cheque really may have been lost in the post – unlikely, but anything is possible!
Remember to follow-up all communication with your tenant with a letter and most importantly, keep copies. Putting everything in writing may be vital evidence if you eventually take court action.
Most tenants, when reminded about a missed payment, will respond quickly and remedy the situation. However, if after a few days the situation still persists then you probably have a more serious rent payment problem on your hands and you need to act quickly.
It can take a long time to regain possession through the courts, often 3 to 6 months. Sometimes difficult tenants can delay matters even further. It’s imperative, therefore, that if you decide to go for possession of the property, to minimise your losses as much as possible, you need to act quickly.
Have a Rent Payments Schedule
If you don’t already have one you need to produce a rent payment schedule showing the payments already made and exactly when payments started to be missed – this is vital evidence if you go to court. A simple spread sheet showing dates, rents due, rents paid and outstanding amounts is all that’s required.
First of all, though, you need to establish contact with the tenant to find out exactly what the problem is. If there are debt problems or the tenant has lost his or her job it may be possible to come to some mutually acceptable arrangement. You need to set out (in writing) a plan of action with timescales for payments and back payments of arrears.
This may include accepting smaller rent payments with increasingly additional amounts to pay off the arrears over a period, or the agreement to pay a lump sum at some future date to make up arrears. At this point do not include the security deposit as a rent payment – this is your only security in this situation.
You should advise your tenant to seek assistance from the various help agencies: The local authority Social Services Department regarding Housing Benefit (HB) and Local Housing Allowance (LHA) payments, Housing Advice Centre, and the Citizens’ Advice Bureau.
You need to establish with the tenant what the future holds. If the tenant’s situation is likely to improve, you may be prepared to “see it through”. Otherwise if the tenant is unable or not willing to make payments there may be no alternative but to seek possession of the property, if large losses are to be avoided.
Tenants in a rent arrears situation often refuse to communicate and actively avoid contact with their landlord. This makes things very difficult and often results in the inevitable – possession proceedings through the courts.
Assist with Housing Benefit Claims
It may be possible to assist your tenant in obtaining Housing Benefits. If your tenant cooperates with you and is willing to apply for HB this may be a solution to your problem, but you need to be prepared for a wait – Housing Benefit claims take time to be approved.
Above all, you need to maintain a good relationship with your tenant if at all possible. After all, the tenant is still living in your property, which you want him to look after and respect. Some tenants will be able to leave within a short time quite voluntarily. This will release your property to re-let and to minimise your losses by starting to earn income again.
However, if the tenants are to be re-house by the local authority there could be no alternative but to go through the court possession proceedings. Local authorities will not re-house tenants who have made themselves homeless by leaving voluntarily and will always advise them to await eviction.
Some tenants may just refuse to go or to co-operate with you in any way. In these cases the sooner you take action for re-possession and eviction the better.
Never Harass your Tenants
Whatever you do never be tempted to harass or in any other way interfere with the tenant’s peaceful occupation of the property. The penalties for harassment are severe and have resulted in heavy fines (over £10,000) and in theory, even imprisonment for landlords.
It is unlikely that landlords will recover all outstanding losses in many rent arrears cases and the best solution is often re-possession and to re-let quickly to minimise your loss.
However, don’t lose heart or patience on this score: if your tenants are working or professionals then there is a very good chance you will eventually recover all your losses using the Small Claims Court.
Using the Possession Procedure
Basically, you have two options when you have a rent arrears situation with an Assured Shorthold Tenancy (AST):
- Where the tenant is nearing the end of his or her tenancy term you can use the Section 21possession procedure – here you are certain to obtain a possession order providing all your paper work is in order.
- Where your tenant is in the early stages of his or her tenancy and you do not wish to delay then you may wish to use the Section 8 procedure, but here you are less certain of obtaining a possession order.
The Accelerated Possession Procedure (s21) is where no hearing is required and the judge can issue a possession order based on your application paperwork alone. However, s21 cannot include a claim for the rent arrears. You will need to bring a separate action for re-claiming any arrears once you obtain possession and using the Small Claims procedure.
The Section 8 Route involves claiming for possession under one of the 17 grounds set out in the 1988 Housing Act – this route can include a claim for the rent arrears. However, some of these 17 grounds are mandatory (providing some specific conditions are met) whiles others are discretionary – the judge can decide, giving you less certainty of outcome.
Ground 8 gives mandatory possession where the the tenant is a full two months in arrears both at the time of serving notice and at the actual court hearing. In the case of a monthly tenancy a full 8 weeks rent arrears is required. There are other non-mandatory grounds, known as discretionary grounds, which can also be invoked, but with less certainty of outcome – see Grounds for Possession.
In most rent arrears situations you should serve these notices:
1 – A warning letter – a polite letter reminding your tenant that he / she is in arrears which must be made up as soon as possible. Your letter should also include an offer to discuss ways to help with, for example, Housing Benefit claims and the rescheduling of rent payments.
2 – A letter before action explaining that as no response has been received you will be taking legal action within 7 days.
3 – Section 21 Notice – 2 month’s notice – which cannot be actioned until the end of the fixed term.
4 – Section 8 Notice – usually citing grounds 8 (8 weeks Rent Arrears) 10 (Behind with rent payments) and Ground 11 (Persistent late payments).
Money Claims – Small Claims Court
Debt Recovery can be expensive and time consuming, but it is sometimes cost effective to do-it-yourself using the Small Claims Court.
Experience shows that avoiding litigation if at all possible, writing off small short-term losses, and moving on as quickly as possible, is often the best overall landlording policy.
However, where rent arrears are substantial, and you feel the the tenant/s is in a position to pay – i.e. working and professional tenants, then it is probably well worth pursuing a claim.
Where tenants leave without giving you a forwarding address – very common where arrears are involved – you may need to use a tracing agent to find your tenants. This can usually be done on a no-find, no fee basis. See: TenantTRACE
Be patient – it sometimes takes a while for someone to establish connections in a new location, especially where a tenant is trying to avoid detection anyway, so give your tracing agent time to trace the subject.
Do-it-Yourself Money Claims
You can start the process online at Money Claim online – just state clearly and concisely what you are claiming for and the amount. Later the case will probably be allocated to the local county court near where the property is located.
Basically, you have two choices when it comes to making a money claim: doing it yourself (the Small Claims process is designed for the layman) or use a solicitor. In the former case you must be prepared to do your homework and involve yourself in a bit of work, whereas in the latter case you must be prepared to pay the legal fees involved, which can mount up.
Having decided the debtor is worth pursuing, the secret of a successful claim is in the putting forward of good case to the court. This involves:
1 – A Statement of Claim – set-out clearly and concisely setting out exactly what it is you are claiming, in this case rent.
2 – A Witness Statement – setting out clearly and concisely the summary of events and the various pieces of evidence to accompany the claim – bank statements, rent schedule, letting agreement etc.
It is important that you make the judge’s job as easy as possible by keeping your statements concise and clear – he does not want to read through a log diatribe about your trials and tribulations, accusations and counter accusations with your tenant.
County Court Judgement and Enforcement
If you go about the process logically and consientiously there’s no reason why you should not be successful in obtaining a county court judgement (CCJ) against the individual.
All that then remains is to collect the debt. Most people will want to avoid the stigma and the disadvantages of having a CCJ recorded against them, as they will have trouble obtaining credit, tenancies and possibly insurance in the future – hopefully they will pay up within the 14 days allowed before the judgement is recorded.
If they do not pay-up there are various remidies open to you, like requesting financial more information on the individual through the court, attachment of earnings orders, charging orders and third party debt orders etc. All these actions incur additional fees, but providing your debtor can pay, all the fees will be added to the debt.
Getting Your Money
Persistent debtors are often very slippery customers sometimes well used to avoiding paying creditors. It’s important that you are fairly sure the debtor can pay and be found, is reasonably stable in location and employment, before you commit time and money to this process.
You need to be aware that the legal process is slow, so a lot of patience is needed.