It’s one of a letting agent’s biggest challenges; recovering rent arrears from non-paying tenants.
But while no agent (or their landlord) actually enjoys chasing money, it doesn’t have to be a painful process.
“Many agents are worried that their tenant will stop payments altogether if they miss one payment and so they make the mistake of aggressively pursuing rental arrears,” says Danielle.
“But there are always two sides to the story. There is often a good reason why tenants can’t or won’t pay rent, the sooner you find out what the problem is, the sooner it’s likely to be solved.”
We discussed the best ways to pursue missed rental payments – and how to avoid problems.
There have been many important legal changes in this area over the past 12 months, so speak to a legal expert in order to ensure that any notice served is the right one for you and is properly drafted. Danielle Hughes, Kirwans.
1 FIND OUT WHAT’S GONE WRONG
Make contact with the tenant as soon as possible following the missed payment. Try to adopt an open and co-operative approach rather than an aggressive, threatening attitude.
There are a number of reasons why a payment might have been missed; maybe the tenant has lost their job, or been unable to work through illness.
Discuss whether the tenant is entitled to housing benefits. They may have a pending application or need help in submitting one.
It is also possible to apply to the Council for housing benefits to be paid to the landlord direct. By working together, you will reduce stress and potential losses for both parties.
Beware: Be careful to strike the right balance, as frequently contacting the tenants to discuss a missed payment could be classed as harassment under the Protection from Harassment Act 1997 – and then you’d be the one in trouble. If the tenant is not open to discussing the issues, don’t push them.
2 RECORD EVERYTHING
It may be time consuming, but any contact, or attempted contact made with the tenant should be properly documented. Whether it’s visits to the property, telephone calls, emails, letters or texts, all forms of contact should be recorded, with copies made of each letter sent, as you never know when you may need to rely on this crucial information. The Court’s forms require an explanation of what steps the agent or landlord has taken to recover any arrears.
Beware: Tenants are usually jointly liable for all of the rent, but there are occasions when one tenant will try to conceal the position from the other(s). Always address letters to each tenant separately to ensure that all concerned are fully aware of the situation.
3 GIVE NOTICE
The law says tenants are entitled to quiet enjoyment of the property – whether they are paying rent or not. The tenancy agreement is the first point of call and should contain guidance on arranging visits to the property. Be sure to check it, as you could be in breach of the agreement if you turn up unannounced. If access to the property is refused, keep a note of the circumstances with times and dates of the refusal.
Beware: If the tenancy agreement is silent on this point, you should provide ‘reasonable notice’, which is generally accepted as being around 48 hours, before visiting the property. Again, be mindful not to breach this as you could fall foul of the harassment legislation.
4 CHECK THE TENANT’S FINANCIAL SITUATION
It may not be the easiest subject to broach, but it is not unreasonable to request details of your tenant’s incomings and outgoings. In fact, rather than being a quirky legal loophole, this is actually standard practice, with income and expenditure forms readily available to help your tenant to gather this information.
You can even set a deadline by which your tenant could submit this information to you (say, for example, 14 days). This exercise can prove very useful in helping the tenants to manage and prioritise their debts as well as assessing how much they can afford to pay.
Beware: You may find that your tenants are reluctant to provide this information, but it’s worth pursuing in order to build a clear picture for both sides on whether this is a short-term problem or a long-term issue. You can then make a joint decision on whether it is affordable and sustainable for the tenants to remain in the property.
5 OFFER SOLUTIONS
It’s likely that your tenant will be feeling just as concerned about the missed payment as you are, so try to work with them to find solutions. Suggest, for example, that the tenant continues to pay their rent, as well as an additional sum for the rent arrears that can be spread over a number of weeks or months until the tenants have fully covered the missed payments. They may for example pay an additional £75 per month for six months to make up a missed payment of £450.
Beware: Ensure that you clearly document the agreement which has been made and be realistic about the tenant’s affordability.
6 KEEP TRACK OF PAYMENTS
It is essential that you keep an account of rental payments. Provide tenants with quarterly rental statements documenting all payments made and missed, including a running total of any arrears. If payments are made in cash, make it your practice to produce a receipt and both sign it. Devious tenants may try to argue that they have paid more cash than you have actually received.
Beware: Failing to provide tenants with regular rental statements can lead to confusion and dispute later down the line over amounts paid and the level of rent arrears.
7 RECOGNISE WHEN IT’S TIME TO TAKE LEGAL ACTION
You’ve taken all the steps outlined above, but there is still no sign of rent payments being made. It’s at this point that you might want to seek specialist legal advice, as you look at serving notices on the tenant. Don’t let the situation drag out until you reach a point of excessive rent arrears.
The two most common forms of notice are under Section 8 and Section 21 of the Housing Act 1988, and which one you serve will depend on the circumstances surrounding the case. If the tenant vacates the property without paying the rent arrears, landlords have a period of six years from the date of the missed payment to pursue the tenant via a separate debt recovery action.
Beware: There have been a growing number of cases of landlords who have tried to issue their own notices, or have used forms found online, only to find out further down the line that the notice was invalid and unenforceable. This can lead to a significant delay and yet more rent arrears. There have been many important legal changes in this area over the past 12 months, so speak to a legal expert in order to ensure that any notice served is the right one for you and is properly drafted.
8 SPEAK TO THE GUARANTOR
If there is a guarantor named in the contract, then contact them and remind them of their legal obligations. As with the tenant, similar steps can be taken with them to agree a payment plan etc.
Beware: Again, too much contact can be construed as harassment, so tread carefully in terms of how often you call and email guarantors.
Paul Shamplina, Founder, Landlord Action, adds –
“When a tenant has fallen behind with their rent, try to make contact; entering into dialogue can quickly uncover the reason and determine whether an agreement to help the tenant through their difficulties can be reached, or if it’s necessary to start eviction proceedings.
Most of us experience financial problems at some point and as long as they are short term and the landlord can afford a little patience, helping a tenant through a tough time could result in them being a loyal tenant for many years to come.
Communication should start with a polite phone call followed up by an email. If the tenant is ignoring communication, try calling on a different number out of regular working hours. Then proceed with a series of 7-day warning letters before the final ‘letter before action’. At this point, if the tenant has made no attempt to make payment, once in two months’ arrears, the landlord should serve a Section 8 notice.
Under no circumstances should landlords or agents go to the property unannounced. Tenants may use this to bring a counterclaim against the landlord for harassment. Altercations do not have to be physical for harassment to be used a defence.
It may be argued that the landlord has breached their obligation to allow the tenant quiet enjoyment of the property. Repeated visits to the property or attempts to discuss the arrears could be said to amount to harassment – leading to a counterclaim for damages. Bombarding a tenant with calls and texts can also come under this and hamper a court case.
When ‘landlord rage’ takes over, it can be difficult to suppress emotions, but landlords and agents must not give the tenant any opportunity to suggest communication has been anything but professional.”
Are you covered?
Several referencing and insurance providers include cover for legal expenses. Let Alliance also offers a Tenant Evict service which is: fully inclusive of their ‘Ultimate Reference’, Tenant Evict offers a full legal eviction service should the tenant default on rental payments in the first 12 months.
LetAlliance will seek to repossess the property and will pay the costs associated with doing so.
If the tenant fails to vacate on expiry of a Section 21 notice (England and Wales only) they will cover the costs of eviction for you.
The service includes initial advice from fully ARLA qualified staff, engagement with specialist solicitors and representation at court if required.