Commercial Insurance Articles
Advice for landlords: When tenants fail to pay their rent
11 Apr 2011
Britain's buy to let property owners have a number of reasons to be happy in the sector as it stands. Demand for rental property is soaring, largely due to the immensely difficult mortgage market facing young house movers and first-time buyers. This in turn has allowed landlords to confidently expand their portfolios, while at the same time charging pretty much what they like in rent.
Don't be fooled into thinking that nothing could go wrong, however. It is arguably the moment that investors become overly confident that they lose their grip on what should be an ideal situation for landlords to find themselves in. One of the main concerns currently rearing its ugly head across the country is the issue of rental arrears.
As redundancies are made by employers up and down the land – and those lucky enough to keep their jobs are subject to pay freezes – a growing number of tenants are running into financial difficulties. And let's not forget that the problem is magnified by soaring living costs, with food and fuel prices soaring.
Combine these factors with the huge debts that families across Britain are trying to pay down and it is somewhat understandable why so many tenants may be struggling to make their rent payments.
According to the Association of Residential Letting Agents (Arla), there is an ever-expanding mountain of evidence to suggest that the UK's renters are increasingly struggling to keep on top of household finances.
The group's latest survey revealed that, during the final quarter of 2010, 40 per cent of members had witnessed a rise in tenants falling behind with rent – up from 35.9 per cent in the previous three months. The results marked the first increase of its size in over a year and a half.
And tenants' failure to meet rental payments can have a serious impact on a landlord's own personal finances. While the uninformed might offer nothing more than a sarcastic 'boohoo' for buy to let property owners having to bid their profits farewell, those who have encountered the problem will know just how severe the repercussions can be.
The fact of the matter is that most buy to let landlords rely on their rental income to meet their own mortgage repayments. If tenants' arrears persist, owners can face an increasing risk of repossession. So if you're renting out a home to tenants unable – or unwilling – to pay their rent, what are your rights?
Step one is to ensure that your tenant is fully aware of the situation, from what is expected of them and the fact that their failure to make timely payments could have serious legal implications.
If they fall behind on several payments, a good idea is to issue them with a formal reminder of their rental obligations. Written communication is best and you should always keep your own copy of any correspondence, just in case the matter ends up in court. Landlords can easily access downloadable rent arrears notices online, ideal for use as a template.
Should your difficulties continue for some time, you may begin thinking about your options with regards to getting the tenant out of your property. Here, you are offered two options, outlined by Sections 8 and 21 of the Housing Act 1988.
If still within the fixed term of the Assured Shorthold Tenancy agreement, you are required to issue the tenant with a Section 8 notice. But in order to reclaim possession of the house or flat, you will need to specify the legal grounds on which you intend to proceed.
Provided that the court believes your reasoning to be fair and justified, you will be issued with a possession order. This would then allow you to reclaim your property.
Section 21 is often the favoured approach of landlords who need to begin possession proceedings, as – in theory – the process should be far simpler. This is largely because this piece of legislation only applies to tenancies where the rental period has come to an end.
Landlords are therefore not required to state why they are looking to reclaim possession. This should in most cases make it easier for a judge to rule in the owner's favour. Unfortunately, the process is not completely without fault. Even if the courts do grant a possession order, regaining control over the property is not always a simple and hassle-free procedure.
Should the tenant still be in residence by the time their notice period expires, you are then legally required to issue a notice of intention to seek possession. This formally indicates that you will be applying to the courts to have them evicted. Provided the court rules in your favour, the tenant will be given a specific date by which they need to vacate the dwelling.
However, the courts have the option to 'suspend' the possession order. This would allow the tenant to remain living at the address, provided they meet certain conditions laid out by the judge.
Ultimately, the best way for landlords to protect themselves is to avoid picking the wrong tenants in the first place. Yes, it is true that anyone can fall behind with rent – particularly amid economic uncertainty. However, landlords can potentially reduce their risk of being plagued by tenants in arrears by carefully screening their prospective suitors before handing over any contracts.
As a starting point, you should always use references provided by new tenants. But even better are thorough inspections offered by trusted groups like the National Landlords Association. These checks will look in detail at your prospect's credit history, allowing you to make an informed judgement as to the risk of them failing to pay up.
Considering the risks and the severe knock-on implications they can have, landlords should simply remember that one can never be too careful.
