Rent arrears can be a source of difficulty for landlords and tenants alike, causing a certain degree of financial strain for both parties. In order to reduce or eliminate such difficulties, landlords must understand how to recover rent arrears in an efficient and professional way. When a tenant fails to pay their monthly rent they find themselves in a tricky position; facing debts and the pressures that come with them, as well as the prospect of eviction. It’s a stressful position.
There are many reasons that your tenants could fall into arrears (many of which are outside of their control), including loss of employment, health problems, family or relationship breakdown, and other debts. As such, it’s important to confront rent arrears in a fair but understanding manner, maintaining a dialogue with your tenant while negotiating a solution.
However, while understanding your tenant’s situation is important, a buildup of rent arrears can be detrimental to a landlord’s business as it greatly affects their ability to keep up with mortgage repayments and sustain their investments. The good news is that arrears can be recovered if you have an action plan in place and understand the best practices in such situations.
1-Keep a record of payments
Make a note both of when rent payments are due and when they’re paid. It’s good practice to send receipt of payments to tenants, however this isn’t essential. Your tenants may prefer to have this for their own records too. This is especially important if tenants on a joint tenancy pay their rent to you separately. Knowing who’s behind on payments and how late they are is really helpful and will increase the efficiency with which both parties can resolve the issue.
Take action immediately
The financial strain caused by a non-paying tenant is only exasperated if you don’t immediately take action and prioritise the recovery of rent arrears. The more time you wait, the less profit you will make from the tenancy. Reacting quickly requires the ability to identify suspected arrears before they fully develop and mitigate their impact at an early stage. Even if a problem seems minor at first, it can quickly develop into something more serious – several months of rent arrears put you at a big disadvantage, eroding not only your margins but also the value of your overall investment.
It’s imperative that you speak to your tenants as soon as a rent payment registers as late. The sooner you figure out what the tenant’s reason for missing a payment is, the sooner you’ll be able to come to a solution and work on recovering their rent arrears or cutting your losses.
2-Contact your tenant(s)
It’s important to keep the dialogue cooperative rather than aggressive – a polite and amiable phone call or email is a good place to start. Their reasons for missing payment may be short-term, allowing you to help them get through their arrears, stomp out the prospect of long-term issues, and gain the respect and loyalty of the tenant in the process. Ultimately, you’re looking to reach a reasonable and mutual agreement with your tenant. There’s no need for these conversations to become awkward or unamicable, think of them as opportunities to build relationships, rather than damage them.
If you’re dealing with multiple tenants in the same property, ask whether they’re jointly and severally liable for individual rent payments (as is often the case when multiple tenants have signed the same tenancy agreement). Have an open discussion with the tenants about their reasons for missing a payment, their ability to make good on the missed payment, and (if they simply cannot make the payment) their course of action moving forwards.
Discuss short-term solutions
If the reasons for your tenant falling into arrears is only temporary, then it’s reasonable to negotiate a short-term solution (assuming that you both maintain a good working relationship). Often, the tenant will be happy to figure out an alternative repayment plan that takes into account their financial situation for the moment, thus securing both the recovery of their arrears and the preservation of their tenancy agreement. For example, this could take the form of a reduced rent while their situation improves followed by an increased rent that makes up for the missed payments – ultimately, it depends greatly on the circumstances.
Understandably, there can be cases in which the tenant is uncommunicative and defensive, making the prospect of coming to a mutual agreement less tenable. However, when the tenant is willing and able to continue regular payments, it’s in the best interest of both parties to identify and agree upon a short-term fix. Of course, make sure that any adjustments they do settle upon are formally documented and signed.
In some cases, the tenant in arrears will be unable to meet their payments with their own money, due to a loss of income or existing debts. If tenants in this situation are still willing to continue their tenancy and get out of arrears, it may be worth asking them whether they have considered making the most of housing support and government benefits. Your tenant may already be receiving some form of state benefit or have an application for their benefits pending approval. Such benefits may ultimately help your tenant with their rent payments, so it’s worth asking them whether or not they’re willing to correct their rent arrears with the use of housing support.
Tenants who haven’t previously used or considered state benefits may be encouraged to assess their options and discover what kind of support is available to them. There are several ways of checking eligibility for housing benefits, such as the Citizens Advice Bureau or the Government’s online benefits calculator. Such resources could be the key to solving your tenant’s financial trouble and ensuring the recovery of your rent payments. Tenants will be required to disclose information about their outgoings, savings, earnings, and existing benefits in order to discern which state support they are eligible for. Just remember that these issues could be considered sensitive by tenants, and landlords should be respectful in their approach. If the tenant doesn’t want to discuss or consider state benefits, avoid pushing them any further.
3-Contact the guarantors
If a guarantor has been named in the tenancy agreement, they can act as a back-up in the event that your tenant does not pay their rent. The third party who is acting as the guarantor (usually a UK homeowner with a sustainable income) can then cover the tenant for their missed rent payment as per their legal agreement with the landlord. If you haven’t received outstanding rent 14 days after it’s due, send your tenant a letter explaining that if you don’t receive the funds you’ll have to take the matter further. Send a similar letter to the guarantor explaining the situation.
Although guarantors are agreed upon in order to help prevent rent arrears and a loss of profit, they should be considered a last resort after the above negotiations – a ‘plan B’. Update the guarantor on your tenant’s financial situation (in writing) and remind them of their legal agreement as specified in the initial contract. The exact amount and terms of payment will depend on the situation, whether it’s a bulk sum or an extended payment plan. Ultimately, the priority should be settling on an agreement that is comfortable and efficient for both you and the guarantor in question.
4-Claim possession of your property
After 21 days if you haven’t received any rent from your tenant or the guarantor, send a third letter. This is the final step before considering further action to reclaim your property. So use this letter to confirm your intention to take legal action if the rent isn’t paid. A fourth letter should also be sent to the guarantor.
How much rent arrears before eviction?
If your tenant has lived in your property without paying rent for a month and another month is now due, you can consider your tenant to be two months in arrears. At this point you have the right, under the Housing Act 1988, to take action to claim possession of your property**.
**Please note that as a result of the pandemic, landlords are currently required to serve a minimum of three months notice before evicting tenants
Serve a Section 8 notice
Serving a Section 8 notice informs your tenant that you intend to take them to court if they don’t pay within a further 14 days. In order to be legally valid this needs to be served in the prescribed form of a Section 8 notice.
How to give your tenants notice using a Section 8:
- fill in a “Notice seeking possession of a property let on an assured tenancy or an assured agricultural occupancy”
- specify which terms of the tenancy they’ve broken
- give the tenants between 2 weeks’ and 2 months’ notice to move out, depending on which terms they’ve broken
Apply to the court for a possession order if your tenants don’t leave by the specified date.
Hopefully, you won’t reach this final stage (or indeed step 2!). Working with professional property managers help landlords to manage and navigate difficult scenarios such as rent arrears. Find out about James Anderson’s property management services here.
If you’re a prospective landlord currently looking to purchase a new property in South West London, feel free to check out the sales we currently have available or have a chat with a member of the James Anderson team.