Top tips for managing rent arrears
Ask any landlord to name the biggest bugbear they face when renting properties and you can bet their answer will be 'rent arrears.' According to the Landlord Finance, Investment and Tax Report from the Residential Landlords Association (RLA), 28% of landlords experienced rent arrears during 2016.
Having a tenant not pay their rent when it's due has an immediate impact on your income and profit margins. It can also put a significant strain on your own finances – after all, it's not as if you can put your buy-to-let mortgage payments or maintenance bills on hold.
Of course, if your tenant falls into arrears, it's unlikely that they would have done so on purpose. It may be due to a change in their circumstances that has impacted their household income, such as divorce or sudden unemployment. That's why it's important to deal with the issue in a professional, yet sensitive manner.
Here are some top tips for managing rent arrears:
Stop it from happening in the first place
While there's no solution to ending rent arrears once and for all, you can limit the likelihood of it happening by doing your homework on all prospective tenants. Running credit history checks and gaining references from employers and former landlords will better your chances of finding reliable tenants who pay up on time.
Deal with the issue ASAP
As soon as you notice that the rent payment has been missed, contact the tenant – there may be a simple explanation. Communication can be informal to start with; for instance, you could send them a text or brief email. In most cases, the tenant will pay soon after hearing from you.
If your tenant regularly misses payments, even if they quickly rectify the issue, then you may want to raise the subject with them personally. Let them know that you depend on their rent to cover costs your end; they may be more sympathetic after seeing things from your point of view.
Consider building an emergency fund to safeguard your finances in the event of a tenant owing you arrears. A few months' rent should be plenty; and if you're forced to dip into the fund, you'll be able to replenish it when you receive what's rightfully yours from your tenant.
Still no luck? Give the tenant options
If your tenant still isn't paying up, make them aware of the consequences – they could lose their home, face legal action and it could impact their ability to rent somewhere else in the future.
Ideally, you want to resolve the issue before pursuing legal action which will cost you time and money, and could be stressful for both parties. For instance, you could agree on a payment plan which may involve increasing rent over the next few months until the arrears have been covered. Other alternatives include requesting that housing benefit be paid straight to you; or getting in touch with the guarantor to cover the shortfall.
This best approach will depend on the tenant's circumstances as well as your relationship with them. Your tenant is bound to appreciate you giving some leeway if they've fallen on hard times, but you don't want this to happen too often. Just remember: there's a difference between someone who can't pay, and someone who won't pay.
Gain possession of your property
If the tenant is downright refusing to pay, then you can provide them with a notice to gain back possession of the property – after all, you don't want your debts to spiral. If the fixed term is up then you can serve the tenant a Section 21, 'no-fault' notice; however, this cannot be given before the end of the first six months of the tenancy.
If the tenancy is still in the fixed term and the tenant owes you arrears of two months or more, then you may wish to use a Section 8 notice. This notice is fault-based, meaning that terms of the tenancy have been broken by the tenant. It is advised that landlords do not issue a Section 8 without the help of a solicitor.
A Section 8 notice can be used to claim arrears at a hearing if you're left with no choice but to take the matter to court. You will need to get a court order to enable you to evict the tenant – as we mentioned, this route will cost you time and money, so do your calculations first to ensure that it's worth pursuing. Even if you do end up in court, there's still a chance that you won't get your money.
Quality insurance with Stride
At Stride, we understand how failed rent payments can be a serious burden on property owners, whether you have a single property or a sizeable portfolio. That's why we offer Rent Guarantee Insurance, which protects landlords against the non-payment of rent by tenants.
Our policies include rent protection of up to £2,500 per month per Assured Shorthold Tenancy agreement (up to £10,000) should your tenant be unable, or refuses, to pay the rent rightly owed to you. Call us today to speak to one of our expert team members.