Property News

Dealing with Rent Arrears

Em Morley - January 13, 2015

Tenants that do not pay their rent can cause huge problems for landlords. If a landlord relies on rental income to cover mortgage repayments, maintenance, or as a monthly supplement, loss of rent can leave landlords in a difficult position.

Landlords with large portfolios, who experience rent arrears in just one house, can quickly abolish margins and affect profitability and sustainability.

Late rent payment is a huge risk that landlords face, as 32% have experienced arrears in the past year, revealed the National Landlords Association (NLA).1

Dealing with Rent Arrears

Dealing with Rent Arrears

The average rent owed is more than £1,6001. If this amount has not been factored into the landlord’s budget, it can leave a wide gap in finances.

Landlords can be proactive however, and avoid a serious problem. The following tips will minimise the risk, and aid you if rent arrears do become an issue. The beginning of the tenancy should be the moment you reduce any possibilities.

It is crucial to vet would-be tenants, including background checks, financial checks, and references.

It is important to note that despite positive findings at this stage, anyone can experience a change in circumstances, so there are ongoing steps to take throughout the tenancy:

Build a good relationship

Maintaining a strong landlord-tenant relationship can ensure that any warning signs are picked up on. If the tenant has a relaxed rapport with you, they will be more likely to speak with you about any difficulties they are having.

Monitor payment

The tenancy agreement should detail when and how payment should be made.

If you discover that rent has not been paid, it is important to enquire quickly and politely. By finding out straight away, the problem can be sorted sooner.

If the issue is worse than immediately assumed, you should arrange a meeting or phone call with the tenant to discuss the situation. Always keep record of communications.

There are many reasons a tenant could be in arrears, including relationship breakdowns, or employment issues. Landlords should remain professional and sensitive throughout any intervention.

The NLA has advised that a repayment plan can be a positive option, depending on the reasons for arrears. A negotiated method can ensure the tenancy continues, and maintain a good relationship. A temporary adjustment to rent may be agreed, but should be recorded in writing and signed by both parties.

Landlord’s budget

Landlords are recommended to plan for only receiving ten out of 12 months’ rent in their budget. This makes sure that you are prepared for a possibility of arrears, and the impact on your finances will not be as bad should it occur.

It is advised that you and your tenant(s) look to the Citizens Advice Bureau, The Money Advice Service, and Step Change.

The tenant may want to end the tenancy, and if both parties agree it can end liability for rent, and allow you to find new tenants. Often, the tenant will leave when new tenants are found.

1 http://www.landlords.org.uk/news-campaigns/news/are-you-suffering-rent-arrears