Non-Payment of Rent
How to avoid non-payment of rent?
Properly vetting a tenant will do much to avoid the likelihood that the landlord ends up with a tenant that fails to pay the rent, however life has unforeseable twists and turns and sometimes even the most trustworthy tenants can find themselves in a situation where they cannot pay the rent. Landlords need stay calm and professional at all times as they work out with their tenant how to best resolve the situation.
The causes of non-payment of rent
Non-payment of rent is probably one of the most common problems experienced by a landlord. It is also one of the most serious. If a landlord is heavily geared on his BTL lending they need the rent to keep rolling in to service their BTL mortgage payments. When the rent stops, a landlords financial position is in jeopardy.
A few months of non-payment of rent means a landlord may be forced to finance their buy-to-let mortgage payments out of their savings or personal income. If a landlord faces financial difficulties then they are advised to talk to their buy-to-let mortgage lender at an early stage. By doing this a landlord can often negotiate a payment holiday or reduced payments whilst they resolve the non payment of rent.
Effective monitoring system of rental payments
The first thing that landlords should ensure is that they have an effective rent monitoring system in place, so that any missed rental payments are picked up early. Early detection is vital so that the landlord can take pro-active steps to safeguard their financial position. With the advent of internet banking, landlords can monitor their bank account for rental payments received. Hourly monitoring is probably excessive, but certainly a weekly glance will ensure that late payments are spotted within days rather than weeks or months when reliant on the traditional postal bank summary.
Typical non payment scenarios
There are a number of scenarios in respect of the problem of non payment of rent. For instance the tenant may have missed a payment, then resumed paying again leaving the landlord with a tenant who is paying but has fallen a month behind with their rent. The other more likely scenario is that the tenant just stops paying altogether. What should the landlord do?
If the tenant has genuine financial difficulties, then it is undoubtedly best for the landlord to try and work with the tenant to bring rental payments up to date. The landlord should either speak to the tenant or go round to their residential investment property and discuss the problem. The landlord should ascertain the tenants’ situation and the reasons for non payment and if the tenant can make a payment to bring their account up to date. By visiting the residential investment property it also gives the landlord the opportunity to give the investment property a quick inspection and ensure that their residential investment is still in good repair and nothing untoward is going on. What are their reasons for non-payment? Do they seem genuine? Has there been a change in the tenant’s personal circumstances such as change of job, or unemployment? The landlord should try and find out as much as possible.
Then it is a case of agreeing with the tenant a course of action. This could be bringing the tenant’s rental account up to date by a series of small additional rental payments; or arranging for the tenant to make a single payment to pay off the tenants entire rental arrears. Try and get all this in writing & get the tenant to sign it. This written evidence will be useful as part of any audit trail should the case go to court. You never know, the landlord may be lucky and their sheer presence is enough to encourage the tenant to pay up the full balance there and then.
PROPERTY HAWK WARNING
Landlords should ensure that if they do go round to the tenanted residential investment property that the landlord has given reasonable notice or as required by the tenancy agreement. A reasonable notice as is the case in the FREE assured shorthold tenancy agreement available in Property Hawk’s PROPERTY MANAGER would be at least a period of 24 hours but ideally 48 hours. If this is not done then the tenant is within their rights to refuse access to the property on the grounds that it breaches the terms of the tenancy.
Helping tenants manage their rental debt
I’ve worked in debt management and I’m always dubious of a debtor who offers to pay off their arrears sometime in the future; for instance with funds from an inheritance or a tax refund. Serial debtors suffer from what’s called the ‘Manyana Syndrome’. I’m more comfortable with a tenant that intends to make small but regular payments. Even if the tenant promises to pay off all their rental arrears in a months time; try and insist that the tenant makes a small interim payment straight away or shortly afterwards. The amount can be small. However, if a tenant makes these payments it’s an obvious sign of their commitment to dealing with the problem. If the tenant doesn’t, this implies that the tenant is probably not going to address the issue. In either case, a landlord can then refine their strategy to deal with the anticipated situation.
In the case of the tenant who makes the rental payment, then it is worth giving them the benefit of the doubt and working with the tenant to pay off their rental arrears. In the case of those tenants that don’t, anticipate trouble!
Maintain a good relationship with a tenant
The landlord should always try and maintain a courteous relationship with the tenant during this difficult time. Advise the tenant to obtain assistance if appropriate. The local authority Social Services Department will give advice on Housing Benefit payments, there are also the Shelter Advice Centres, and the Citizens’ Advice Bureaux (CAB).
Landlords should be aware that ironically it could well be a local authority or Citizens’ Advice Bureaux (CAB). advisor who has caused the problem in the first place. There have been a number of cases where tenants have been advised or it has been “suggested to them” that the only way to be eligible for a council property is to be to be made homeless. If the tenant is living in private rental accommodation this means being evicted by the landlord as opposed to leaving voluntarily. In order to prompt this case of action, non payment of rent is an obvious precursor to the start of the eviction process.
In dealing with all of this the landlords approach needs to be slightly Macavelian. A landlord needs to keep their allies close but they also need to keep their enemy closer. This approach will pay off if trouble ever strikes. This is because having basic information about the tenant will be a significant advantage to the landlord should legal proceedings be required.
The landlord can look to minimise their exposure to the risk of a non paying tenant by serving them with a Section 21 Notice seeking possession. Propertyhawk users can get copies of a free Section 21 Notice .
A landlord shouldn’t spend lots of time negotiating with the tenant. This will only give the tenant more time to rack up large debts. The landlord needs to act incisively, unless they are strongly convinced otherwise. If the tenant is 2 months or more behind with their rent, then possession proceedings are more straightforward as Ground 8 of the Housing Act 1988 provides this as a Mandatory Ground for possession
The act of serving the notices correctly by the landlord will often cause a tenant to disappear.
Landlords should therefore be prepared for the need to serve notices for possession and the legal action required to recover rent arrears. Landlords should endeavour even during legal proceedings to keep in contact with the tenant and use any opportunity to glean as much up to date information on the tenants as possible. This information will be vital should a tenant run of from the rental property and the landlord has to issue legal proceedings to recover their financial losses. The information is particularly useful when trying to trace a tenant that has disappeared or when trying to reclaim rent arrears.
- National insurance number
- Work details
- Correct name
- Residential address
- Date of birth
Harassment of a tenant who owes rent
One situation that landlords must avoid at all costs is that of taking the matter into their own hands. However, tempting it is for a landlord who believes that they have the moral high ground to seize their property back from a tenant who has stopped paying rent; they should never do it. This is because the landlord could be greeted with a charge of landlord harassment by the tenant which carries with it a maximum fine of £10,000. Landlords should remember that they may well be dealing with a serial ‘scammer’. That is the type of tenant that makes a habit of ‘ripping off’ landlords but using the law as their weapon and using a landlords naivety and yearning to get their property back for their own financial benefit. In some cases a tenant may have already left the landlords investment property. This may constitute a case of tenant abandonment of a rental property.
Recovering owed rent
When tenants stop paying the rent particularly where there has been a significant change in their financial circumstances, landlords need to be realistic about their chance of recovering all of their monies. It is unlikely that landlords will ever recover all outstanding losses. In many rent arrears cases the best solution is often repossession of a rental property and for a landlord to re-let quickly to minimise their loss.
This is not to say that the task is impossible however, frequently landlords may feel that the law, the council, the tenant and the world is against them. This is where careful preparation & dogged determination by the landlord to see that justice is done will often be the defining features for a successful action to recover a landlords rent and other owed monies.