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TOM's Ultimate Guide for landlords whose tenants can't pay the rent

tom entwistle rent arrears

More than half of landlords reported having lost rental income due to the pandemic and, as the cost of living crisis continues to bite, many more are worried about their tenant falling behind with the rent.

It's vital that landlords know how to deal with rent arrears before they escalate. In this article, Tom Entwistle, a residential and commercial landlord since the 1970s and founder of LandlordZONE draws on his experience to offer tips for landlords whose tenants can't pay the rent.

For more advice, read Total Landlord's article, what to do if your tenant can't pay the rent and falls into arrears, including videos from Mike Morgan of the Property Redress Scheme's Tenancy Mediation Service, and evictions expert Paul Shamplina, founder of Landlord Action.

Tenants in arrears

A key skill for any successful landlord is having the ability to manage rent payments effectively. Maintaining your cash-flow - especially if you have a mortgage or mortgages to pay - is a vital part of your property management skill set, much needed to avoid you perhaps losing a property that you've worked hard to acquire.

Having missed or constantly receiving late rent payments from a tenant is an alarming prospect and very frustrating for any landlord. Rent arrears lead to a good deal of stress and sometimes sleepless nights for landlords.

But it's something you need to learn to deal with in a professional and detached way if you are to maintain a good relationship with your paying customers '� your tenants.

Getting angry solves nothing and can lead to more trouble. You need to work through a logical process to deal with the situation, one which treats your tenants with respect and is as helpful as possible in what is often a very difficult situation for your tenants.

Planning ahead

Everything you do in a landlord-tenant relationship should be planned and precise, planning for the worst case but hoping for the best. In my experience dealing with the average residential tenant means that 95 percent of them (19 out of 20) will pay their rent on time and look after your property as any good home should be looked after.

It's the small percentage of tenants that cause you all the trouble, so better to do your best to avoid them in the first place. Do thorough vetting and selection, carry out a robust referencing process, take precautions like asking for a guarantor and taking out rent guarantee insurance.

These precautions, I would suggest, will be even more important when Section 21 is abolished under pending new legislation changes.

Standing orders '� best thing since sliced bread!

I always insist on rent payments by standing order. I've found it is the best system ever to manage rent payments for residential as well as commercial tenants, for the small-scale landlord.

You know instantly when a rent payment has failed to arrive because standing orders are only cancelled for two reasons: there is not enough money in the tenant's account or the tenant instructed the bank to stop it.

I've never accepted payments by cheque because it's so hit and miss and stressful: the cheque's late, is it the post? Has the tenant not sent one? How long should I wait to ask? When you do ask, invariably 'it's in the post'� or 'I've changed banks and I'm waiting for a new cheque book'�, in fact every excuse under the sun. This game can go on for a long time.

So, with standing orders all you need to do is keep an eye on your bank balance online. You know exactly when the rent is due each month and if it does not appear you need to take immediate action.

Don't be tempted to delay taking action or your tenant will think you are too relaxed about it. Start with a friendly phone call, email or just call round to ask your tenant why the non-payment?

Whatever the reason or excuse, always follow this up in writing and state the circumstances as a contemporaneous note in your tenancy' diary. It might seem harsh but this could be the first step in the eviction process so documentary evidence is so important. Most evictions are due to rent arrears.

I have a 'rent arrears letter'� that I send out with a statement of rent payments already received and when the arrears started. I will re-send this on a regular basis until the arrears are cleared.

The letter contains information about how the tenant can seek financial help and advice, how we can talk about their problems and try to resolve them in the short term, and finally the severe consequences of falling behind with their rent.

If there's a guarantor or rent guarantee insurance involved make sure you keep these parties in the loop, always send them copies of your letters and statements so they know in good time what they may be liable for, and they may then put some pressure on your tenants to comply.

Always communicate directly with your tenant if you can

Having had many instances of rent arrears or missed payments over the years I find that there's often a genuine reason and one that can be sorted out with a quick discussion.

Perhaps there was a change of bank, a late wage payment or just a heavy spending month, and a cheque will make-up for the missed payment, but invariably a missed standing order is a sign of trouble, a struggle on the tenant's part to pay.

I find that some tenants will cooperate to try and overcome their difficulties, but some '� and I'm afraid to say a good number, will do their utmost to avoid you when they are struggling. They will fail to answer their phone, or respond to emails or answer the door.  They are either too embarrassed to face you or they want to mentally bury their money issues and hope they will go away.

If you find your tenant is willing to cooperate with you, and is willing to accept help when they are perhaps going through a temporary money problem, then you should try your best to accommodate them.

They may well otherwise be a good tenant, but in an energy crisis with high inflation and job insecurities they may need temporary help, like a rent holiday or a temporary reduction in rent, to be repaid over time.

Alternatively your tenant may be able to pay but has no intention of doing so. Or is continually paying late in dribs and drabs, which makes your life difficult keeping track of it all.

Not being able to communicate means that you are not able to offer help and therefore the situation will inevitably lead to you going for an eviction '� no landlord can be expected to house tenants for free indefinitely.

Follow the correct procedure

For serious arrears the tenant needs to have missed at least two monthly rent payments. When a payment is missed I send (by post and email as well if you can) a rent arrears statement regularly showing the arrears as they build-up. This does three things: it keeps the tenant reminded of the arrears situation, it stops both parties losing track of the arrears position and it forms good evidence if you need to go to court.

How can mediation help with rent arrears?

Taking the legal route should be a last resort. If you can get some cooperation, mediation should be your first port of call if you're having trouble reaching an agreement with your tenant yourself.

But at the same time, buy-to-let is a business and you can't afford to allow someone to keep living in your property rent free.

When your tenant is in two to three months' rent arrears, and it appears they either can't afford or simply won't make their rent payments, then you may have to make the difficult decision to serve an eviction notice.

Eviction should be a last resort but if you need to go down this route make sure your property is in good order and you have responded to any repairs requests.

You also need to be sure you have complied with the necessary prescribed actions such as having a current gas and electrical check certificate, carried out right-to-rent checks and all the appropriate notices have been served, especially when using Section 21.

The Section 21 notice is a two months' notice normally served when rent arrears start, whereas a Section 8 notice is a two weeks' notice for rent arrears and the arrears should be for more than two months.

Section 21 is only available if the tenancy is a periodic one, where the fixed term has ended. If you are lucky the tenant may realise they can't afford to stay and leave voluntarily.

Arrears in commercial (business) tenancies

In my opinion rent arrears in a business tenancy are similar to a residential tenancy in that the first priority is to help your tenant through any short-term difficulty, but the handling of this calls for a more nuanced approach.

Again, as soon as the arrears start you should establish contact to find out what the difficulty is. A short-term cash flow issue can be accommodated perhaps with a temporary rent re-scheduling, a rent holiday or reduction, to be made up over time, and again you need to send regular statements to clock the position at the start and as the arrears build.

It may be possible to help a commercial tenant out of their difficulties by suggesting a sub-letting of part of the premises or an assignment of the lease to another tenant. The RICS Code for Leasing Business Premises offers guidance here.

Whereas a tenant in persistent arrears in a residential tenancy is better out of the property, from the landlord's point of view, this is not necessarily the case with a commercial tenant.

When a commercial tenant is evicted a lot of the tenant's costs fall back onto the landlord: full business rates in most situations become payable after three months, insurance premiums (which often double for a vacant unit) can no longer be charged to the tenant, security issues arise with vacant units, and the landlord has to take care of standing charges for all services: gas, electricity, telephone, internet. They all fall on the landlord, along with a good deal of administration time.

The lease term and non-payment

The tenant is tied into a lease for its duration, and is responsible for all the costs regardless of paying the rent. There are often advantages, given that commercial units can take some time to re-let, especially in difficult economic times, to try to help the tenant through the difficulties and it is better to have the tenant in the premises even if they don't pay rent.

With a commercial tenant who won't cooperate and won't pay there are two possible courses of action before resorting to forfeiture '� the procedure for evicting a commercial tenant.

One is to take the tenant to the county court (small claims) for the debt of rent arrears, and two is to appoint bailiffs who will visit distress for rent (Distress for Rent Act 1737) on goods if the rent is not forthcoming.

Bailiffs must also follow more recent legislation known as Commercial rent arrears recovery (CRAR). Often one or other of these two courses of action are enough to shock the tenant into keeping up the rent payments in future.

A key point about dealing with rent arrears is that you need to let your tenant know that you take the matter extremely seriously. You do this by taking action as soon as a payment is missed.

Don't ignore it and hope the problem will go away, or you will allow arrears to build up into enormous losses, as some landlords do.



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