Interest charges on rent arrears
What interest rate should a landlord charge on late rent payments?
My problem tenant has finally left. Thank god! Unfortunately, as I’d expected the place has been left as a dump and will take a lot of work to make it re-lettable. The skip has been ordered and I’ve organised for the tenants rubbish along with the seriously abused carpets to be cleared. All in days work for a landlord!
Don’t get mad get possession & then even!
Having just gone through the Courts to reclaim my rent, I’ve re-acquainted myself with what costs a landlord can reclaim from their tenant once they have left. Rebecca Brough of Fidler & Pepper recently advised our landlords as to their rights on reclaiming costs from tenants.
- The cost of letters sent requesting payment of rent (I’m not sure whether emails would attract the same charges).
- Court fees paid including the charges of taking court action through Money Claims Online (MCOL) to get your money back from a tenant.
- The reasonable costs of obtaining possession.
- Interest charged on outstanding rent
Reclaiming interest on outstanding rent payments
One of the allowable costs a landlord can reclaim from their tenant is interest charged on outstanding rent. However, when I checked on the tenancy agreement supplied by my letting agent, it didn’t exactly have me rubbing my hands together – the rate payable is just 1% above the bank base rate, so therefore, in these low inflation times, a pathetically derisory total of just 1.5%.
Using my rudimentary maths, this equates to a pitiful £15 if £1000 of rent remains unpaid for a year.
Surely this can’t be right?
Rebecca Brough has advised me that a landlord could get away with a charge of up to 8% interest pa on outstanding rental amount, and in Property Hawk’s tenancy agreement it allows a rate of 5% above the base rate, giving a more respectable 5.5% pa rate charge on the outstanding rental balance.
Interest charges are a joke
Unfortunately because of the rate stated on the letting agency’s tenancy agreement, I’m now stuck with the 1.5% rate – a rate that clearly brings little incentive for my ex-tenant to repay this ‘bank of landlord’ anytime soon.
This compares badly to the banks and credit card providers who are able to charge their interest, not only annually, but also monthly on any outstanding balances. If we want to deter missed payments by tenants then surely there should be more scope available to landlords for a penal rate of interest to be charged on any outstanding rental payments?
Clearly, a landlord shouldn’t be able to pluck some ridiculously high figure from thin air, but a figure that reflects the fact that the non-payment of rent to the landlord, something that may result in the landlord not being able to pay their BTL mortgage and therefore pushes them to have to borrow money at a much higher rates of interest from other lenders.
It appears that currently there is little in terms of financial penalties to deter tenants from building up debts and then waiting for landlords to have to go through the time consuming and long winded process of getting their money back through the courts.
I think my experience highlights the fact that it’s time for a change. I think the law should allow landlords to charge higher rates of interest on outstanding rents that both penalises late payment and also more accurately reflects the costs of collecting the debt.
What do you think?