Dealing with Rental Arrears

Severe rental arrears fell by almost 16 per cent in the fourth quarter of 2012 according to data from LSL Property Services. Reporting 16,000 fewer tenants who were more than two months behind with their rent than in the previous quarter.
This improvement marks a turning point in what had been an upward trend in severe arrears. Which are now lower than at any time since the end of 2011, with just 2.2 per cent of tenancies in serious arrears.
This is good news for landlords. But the problem still remains. So what should a landlord do if they are faced with serious rental arrears.

Landlords should take decisive action with a section 21 notice

The initial approach from any landlord should be to prevent serious rental arrears from accumulating in the first place. This can be helped in the way they manage the tenancy. As soon as a tenant misses a rental payment a landlord should act by issuing a section 21 notice.
This will help give a landlord the whip hand in obtaining possession should the situation deteriorate further, with more missed rental payments. Some landlords prefer to be more pro-active and issue a section 21 notice just after they have created a tenancy agreement.

Rent guarantee insurance

Another way of guarding against rental arrears is to take out rent guarantee insurance.

I know Alan Boswell Insurance will provide legal expense insurance for about £25 per property and for a little more, cover the lost rent a landlord is due, whilst they obtain possession. It is worth noting that whilst serious rental arrears are taking a downward move the number of possession orders were up by 5.5 per cent in the third quarter of 2012.

Should I be understanding?

Many landlords hope to build up a rapport with their tenants, which is good. After all landlord and tenant should be working together to make the tenancy work. I know that the likes of the Guardian may find it hard to believe, but ‘shock horror,’ some landlords even quite like their tenants. Most of us have been tenants ourselves at one time, and many of us have kids who are now renting. There is a danger however that landlords empathise too much with their tenants. By not wanting to appear to be taking a heavy handed approach, they end up avoiding tackling the problem at all. This means that rather than taking preventative action, as I mentioned above; they allow their tenants to make reduced, or intermittent rental payments, in the hope that their financial situation improves. Unfortunately, very often it doesn’t. Then both the tenant and the landlord are left in a more and more difficult situation. The tenant can’t afford their arrears, and the landlord can’t afford to let go of the idea that they will get their unpaid rent back. Any good landlord will try and work with the tenant to try and bring the rental account up to date, by taking a reduced rent in the odd month, whilst agreeing to additional payments at a later date (a payment plan). This should never be done at the expense of decisive action. Landlords should never confuse being understanding, with becoming an ‘ostrich’, and ignoring the potential threat to their rental business caused by rental arrears.

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