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 will find themselves in a tricky position – facing up to debts, pressures, and the prospect of eviction is a stressful task. 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.
Take action immediately
The financial strain caused by a non-paying tenant is only exasperated if you do not immediately take action and prioritise the recovery of their rent arrears. The more time you wait, the less profit you are likely to 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 will put you at a big disadvantage, eroding not only your margins but also the value of your overall investment.
It is imperative that landlords speak to their 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 will be able to come to a solution and work on recovering their rent arrears or cutting your losses. It’s important to keep the dialogue cooperative rather than aggressive – a polite and amiable phone call 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 are looking to reach a reasonable and mutual agreement with your tenant.
If you are dealing with multiple tenants in the same property, you should ask whether they are 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 is 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 will 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, the landlord should make sure that any adjustments they do settle upon are formally documented and signed.
In some cases, the tenant in arrears will be unable meet their payments with their own money due to a loss of income or existing debts. If tenants in this situation are still willing 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 use correct their rent arrears with the use of housing support.
Tenants who have not 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 does not want to discuss or consider state benefits, avoid pushing them any further.
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.
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.
If you are 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.