How to Handle Rental Arrears

Being behind on rental arrears is awkward for both parties. No tenant wants to have financial worries, and no landlord wants to be chasing up rent – particularly in this climate. As a tenant, the most important part of renting a home is making those monthly payments – but falling behind can happen.

As a landlord, it’s important to remember this and act reasonably, yet decisively. There’s a process to follow when recovering missed rent and ultimately evicting a non-paying tenant, but it can be a long and tedious one…

 

The coronavirus effect

Firstly, let’s start by explaining how the coronavirus has affected the way rent and evictions are being handled. To keep people safe and to avoid anyone being without a home at this time, landlords are not currently allowed to repossess their property. Notice periods are now extended to three months until September 30th, 2020, and could be extended for a further six months in the future.

 

Alongside this, the UK Government has announced the introduction of mortgage and rent holidays to relieve financial pressure on both landlords and tenants. Lenders have agreed to allow people with buy-to-let mortgages to apply for a three month mortgage holiday where they won’t have to make scheduled mortgage payments. Similarly, tenants can apply for a three month rent holiday which works the same way if they have lost their job or their income has decreased.

 

To qualify for a mortgage holiday, a landlord will need to meet two requirements; their tenant must have been directly or indirectly affected by the Coronavirus, and thus cannot afford their rent, and secondly, the landlord must be up to date with their current mortgage payments.

If a tenant can’t afford their rent at the moment, it might be tempting for a landlord to use the tenant’s security deposit before the tenancy has ended in order to cover it. This, however, is not allowed but they can claim rent arrears at the end of the tenancy, and the deposit can be put towards covering it then.

 

What about normal circumstances?

Although everything is a little different right now, it’s important to know the correct way to handle rent arrears in a normal instance. One of the most important things to do is not to jump to conclusions as a landlord if your tenant’s rent is late. There may be many good reasons as to why, and one could simply be forgetfulness. Life gets the better of people sometimes and they might just need a gentle nudge.

 

If your tenant is having temporary cash flow problems for whatever reason, perhaps you can work with them to set up an alternative plan for paying the rent that relieves the pressure a little and works for both parties, such as paying in smaller installments. There could be more significant issues at play, such as your tenant losing their job, bereavement, or splitting up from a partner. Perhaps they are suffering from a physical or mental illness. Always reach out and speak to your tenant before taking any drastic action against them.

 

As a tenant, always be honest with your landlord about your finances. The least a tenant should do is pay their rent, and the more open and forthcoming you are, the better received your issues are likely to be by your landlord.

 

What if a tenant just doesn’t want to pay their rent?

Of course, sometimes a landlord might just land themselves with a difficult tenant who doesn’t want to pay their rent. Some tenants might think that they can legally withhold rent if they are unhappy about the condition of their property. This is illegal though and will put them at risk of eviction.

 

That being said, communication is still paramount here between tenant and landlord, no matter who might be at fault. When things go wrong, having a good relationship will avoid these kinds of negative reactions and the possibility of withholding rent. There always needs to be mutual respect where possible.

 

If you’re a landlord and your tenant has stopped paying rent:

 

• Keep a record of all payments, when they are due and when they are paid. Send receipts to your tenants each month. If you ever do decide to make an application for possession against a tenant based on them not paying rent, you’ll be required to provide a copy of all rent payment transactions.
• Let your tenants know that you take collecting rent seriously and any late or missed payments won’t be ignored, and any issues with payments should be flagged in plenty of time.
• If rent is late, reach out via the phone or email to check everything is okay.
• If you still haven’t heard from them, send them a formal demand by first class mail.
• If the issue persists, contact your tenant’s guarantor by sending them a letter letting them know that the tenant hasn’t paid their rent.
• You should also send a second letter to your tenant and let them know that your next step will be to take the matter further and seek possession of the property.
• If you reach 21 days without payment, send a final letter to both the tenant and the guarantor confirming your intention to take legal action.

 

How to avoid rental arrears

As a landlord, there are a few things that you could do to safeguard yourself against being caught up in rent arrears issues. Firstly, get yourself a landlord insurance cover that will protect you if your tenant doesn’t pay the rent. A good policy will ensure that unpaid rent and the costs of evicting a problematic tenant are taken care of. You can compare landlord insurance over on CIA to find a suitable policy.

 

Make sure you screen your tenants thoroughly and always run a credit check to see whether they have a history of meeting financial requirements. Although remember – bad credit doesn’t always equate to a bad tenant. It’s a red flag, but it would be unfair to reject a tenant on this basis alone without talking to them first.

 

As a tenant, make sure you find yourself a reliable guarantor who can help you financially if things get tricky and make sure your landlord has their details. Perhaps you could have some emergency savings put aside to cover a few months’ rent in case you fall behind. It’s easier said than done, but renting a home is financial responsibility and not one that should be taken on if you can’t keep it up.

You do want to make sure that you maintain your home too so that you present it well when it is time to vacate.