How should you respond to your tenant falling into rent arrears?

As a landlord, you will never want to hear about the tenant of your property being unable to pay their rent as it falls due. After all, you have your own costs that must be paid, such as your mortgage, so your lettings business very much depends on the correct amount of rent reaching you on time.

The good news is that it’s relatively unlikely that any given tenant of yours will fall into rent arrears. Indeed, one study from 2013 found that only about two or three tenants in every 100 failed to pay their rent on time.

Nonetheless, any rental arrears that do occur can have catastrophic effects on your finances as a landlord, so it’s vital to know the next steps you need to take if this issue arises.

With rent arrears, prevention is always better than cure

Well, prevention is better than cure for everything, so you should certainly vet your tenants thoroughly to minimise the likelihood of taking on someone who is unable to make their rent payments.

It’s standard practice to carry out various checks on a prospective tenant, including by asking for proof of income in the form of payslips or a certified bank statement, as well as by requesting references from the tenant’s current employer and previous landlord.

A credit check of the tenant should also be undertaken at this stage, not least because it is likely to be a requirement of any insurer that provides you with a landlord insurance policy protecting you against rent arrears.

What about once the tenancy has started?

It pays to be alert to any potential problems from the earliest stage to ensure any rental arrears that do occur at any point are hopefully minimised.

It’s important to maintain good relations with your tenant at all times, which you can help to ensure by not immediately accusing your tenant if their latest due rent does not appear to have been paid. There may be an innocuous reason for this, such as a banking or admin issue that can be quickly and easily resolved.

However, by closely monitoring receipt of rent, you can establish early on whether any rental arrears are serious and if so, arrange to speak to the tenant about their circumstances and how you can work together to address the problem.

The best next steps to take if arrears do occur

If 24 hours pass after the rental payment is due and you need to get in touch with the tenant, you may learn that the cause isn’t as trivial as the tenant simply being too busy or having forgotten to transfer their payment instruction to their new bank account.

Some form of income loss is often the cause of an otherwise thoroughly vetted and reliable tenant falling behind with their rent. They may have lost their job, for example, or been forced to accept a cut in wages. Alternatively, a co-tenant may have moved out, meaning the remaining tenant suddenly has a greater amount of rent to pay than they can afford.

Naturally, the exact route that you take to resolve the problem can vary depending on the identity of the tenant and the cause of the rent arrears. You are likely to have much greater patience with a well-behaved tenant who has paid their rent reliably for years, than a tenant who you are already in dispute with and who has been failing to adequately look after the property.

However, as a general rule and if the tenant is willing and trustworthy, it’s a good idea to consider the following potential solutions:

  • The repayment of the missed rent in a realistic timeframe
  • The payment of a lump sum to cover the arrears on a future date
  • A reduction in rent until the tenant can resume paying the normal rent amount and repay any outstanding arrears
  • As a last resort, waiving the arrears if the tenant agrees to vacate the property

Be aware of your legal options

It’s unlikely that you will have a heart of stone, and it is much better to resolve any rent arrears issues with your tenant amicably than to get into a deeper dispute with them. Nonetheless, there may come a time when you are forced to contemplate legal proceedings.

Tenants are legally required to pay their rent as agreed in the tenancy agreement. In the event that they do fall behind with their rent payments, you are therefore able to claim back any money you are owed under the terms of the tenancy agreement, using the County Court’s small claims procedure.

This is also known as a ‘money judgement’, and is a court order that forces a debtor to repay any money they owe a creditor. As the name suggests, this is a procedure solely for obtaining any rent arrears owed to you, rather than for regaining possession of the property.

A money judgement can be applied for as long as you have proof that your tenant owes you money, and there are various ways the court may enforce its judgement. It may order the tenant’s employers to make a regular deduction from their salary to repay the debt, or a bailiff may even be permitted to seize and sell sufficient goods belonging to the tenant to recover the money due.

The ‘nuclear option’ may have to be considered

No one wants to have to remove a tenant from a property simply because of rent arrears, but there may come a time it simply has to be done.

Merely threatening a possession order may be sufficient to get a difficult non-paying tenant to come to an arrangement with you. However, if you do need to go through the process for real and the tenant is on an assured shorthold tenancy (AST), you can normally use an accelerated possession procedure (APP) that enables you to evict them without giving a reason.

The use of an APP depends on providing the tenant with two months’ notice and issuing them with what is known as a Section 21 notice. If the tenant fails to move out by the date specified in the notice, you will then be able to undertake the accelerated procedure.

A standard possession procedure is also available if you cannot fulfil the minimum criteria for the accelerated procedure. In this case, the tenant must be served with a Section 8 notice.

Take care in your handling of rent arrears

Even the best tenants may struggle to pay their rent at some point, and it is important to balance compassion, urgency and common sense when dealing with an arrears situation affecting your own property’s tenant.

Follow the above steps, and you will stand the best possible chance of resolving any rental arrears in a manner that is satisfactory to all parties.

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