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How Should You Deal With Tenant Rent Arrears

Rent arrears is probably the biggest worry a landlord can face. It’s the type of thing that can keep you up at night even before it happens. Over the last few years, cases of rent arrears have been on the increase. So what should you, as a landlord, do if you faced with tenant rent arrears?

When speaking to new landlords and through MakeUrMove’s property management services, we get a good indication of the impact tenant rent arrears are having on the private rental sector. Undoubtedly, this is the biggest headache a landlord faces.

The rise we’ve been seeing in tenant rent arrears correlates with industry-wide rent increases. Many of the rent increases have been implemented following the 3% rises in stamp duty on second properties and the introduction of the reduction in tax relief on mortgage interest payments. Invariably, if landlords face extra costs, these will eventually be passed on to their tenants. These costs can make affordability difficult for tenants.

Over the last couple of years, there have been a number of moves to further regulate the private rental sector. This is a trend that appears to be moving at a greater pace. Unfortunately, there will be a period of readjustment as landlords and tenants get used to the impact of regulatory changes. Naturally, some tenants will find it more difficult to pay and it’s best to be prepared for this eventually.

What happens if a tenant doesn’t pay the rent?

Like most landlords, you may be very reliant on your tenant(s) to pay the rent in order to cover the monthly mortgage bill. And dependant on your own situation, a tenant not paying the rent could have a very serious impact on the finances of your own life and potentially that of your family.

This can be especially problematic for landlords who collect their rent around the same time that mortgage is paid.

Why do tenants fail to pay the rent?

It can be very frustrating when a tenant doesn’t pay the rent on time. This can be even more troubling if the tenant hasn’t communicated that the rent won’t be paid. The first thing to remember is that most tenants don’t fall into rent arrears on purpose.

There may be some occasions when you don’t get on with your tenant and rent may be withheld. If this happens, you will probably have a good indication that your dispute is the cause. This isn’t of great solace to a landlord because you still have to find the money, however, you will be able to make the necessary plans to deal with any short-term loss in rental income.

When tenant rent arrears come out of the blue it can be more worrying.

When you experience tenant rent arrears it tends to be indicative of other financial problems in their life. These financial problems could include:

  • A tenant losing their job
  • The tenant has a reduction in their hours or income
  • The cost of living increases
  • They experience a relationship breakdown

In addition, you may experience a tenant moving out before the end of their contract. Although you can’t prepare for this, you need to be ready to get the property back on the market and be prepared to chase them for the remaining rent.

What action should you take when a tenant falls into rent arrears

If you are a landlord, it's likely you're going to experience a tenant not paying their rent from time to time. It’s par for the course. That doesn’t mean you’re always going to be ready to deal with this problem when it arises.

The first thing to say is you shouldn’t let rent arrears drag on, but you should be cautious about how you approach it. Give them a couple of days before you contact your tenant and to begin with, it’s perhaps best just to drop them an email.

Once you’ve sent out an email wait for their reply. If you’ve heard nothing back for a couple of days you may then want to give them a call. If you live local to the property you could drive past to make sure someone is there. All the time you should bear in mind this could be a genuine mistake. They may have a family emergency or they could be on holiday. But whatever you do, don't just turn up unannounced demanding rent.

Make sure you keep trying to speak to your tenants and keep notes of all the communications you’ve had with them. All too often landlords let one missed rent payment slip and before they know it the second month is upon them and they’re struggling to make payment.

If you’ve got to eight weeks without receiving a rent payment from your tenant you’re then going to want to speak with the local council to have your tenant's housing benefits (if they have them) paid directly to you, and/or look into how you will start eviction proceedings.

The key here is to make sure you act quickly and decisively. Remember also, if your tenants are experiencing financial difficulties, it tends to be those that contact them the most often - or 'those who shout the loudest’ - that get paid.

How to speak to a tenant that hasn’t paid the rent

You’re going to have to speak to your tenant if you want to get the rent arrears paid, but you need a plan and you should consider how you’re going to speak to them and the language you’ll use. This is a sensitive situation and they are likely feeling stressed about it. Be compassionate but firm.

As a landlord you should let your tenants know if they don’t pay their rent they could:

  • Lose their home
  • Face legal action
  • Find it difficult to rent in the future

But, if you want to keep your tenants you should be prepared to try to help them find a solution. In this situation you can:

  • Waive the rent for that month as a gesture of goodwill
  • Agree on repayment terms
  • Agree the payment will be settled at the end of the tenancy
  • Agree on a part payment

Every situation is going to be different. Just because one solution worked for your last tenant doesn’t mean it’s going to work with your current tenants. The key thing is to be flexible and remember that people’s circumstances change over time.

How you handle it will very much depend on whether they can’t pay their rent or won’t pay their rent. You’ll probably have to be tougher if your tenants won’t pay their rent, however it may be something you can resolve relatively easily if they’re withholding rent due to a faulty appliance.

Should I increase the rent even though my tenants say they can’t afford it?

As a landlord, you are probably experiencing what may feel like ever-increasing costs, both to running your landlord business and in terms of costs of living. Your tenants are experiencing exactly the same pressures. You may think it’s best to leave your rent at a lower level to keep your tenants from experiencing that pressure, but is this really the best course of action? If you’re letting out a property, you are running a business, and you’ve got to look out for the interests of the business.

If you’re no longer in the fixed contract period you can start to consider putting the rent up.

If you have to put the rent up you need to have a conversation with your tenants to see what they can afford. It’s best to have a conversation with them before you serve the required month’s notice of a rent increase. If they are making their rent but say they will struggle to pay the increased rent then you may want to consider if it’s worth it in the short to medium term. On the other hand, if your tenants have been struggling to pay the lower rent and you’re confident you can find new tenants, it may be worth the risk of putting the rent up.

At some point or another, many landlords take the decision to put the rent up in the knowledge that tenant rent arrears may follow a few months down the road, hoping you won’t have to evict them and in the understanding that there may be an empty property needing tenants.

By using our property management support service, you let us know you want to increase the rent and a member of our property management support team will approach your tenants, on your behalf, to negotiate the appropriate increase. To get started with MakeUrMove list your rental property for free or learn more about our property management service.

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