With the cost of living rising, and many people struggling with financial issues, what can landlords do if tenants fall behind on their rental payments?
There are a couple of facets to this sensitive topic. On the one hand, landlords themselves are not immune to being financially stretched - rental income is invariably an essential rather than a luxury for those who own properties they don't live in, and missed payments can cause difficulty. Then again, more often than not there’s a reasonable explanation for missed payments that can be easily resolved, so it benefits to react with care.
Crucially, if you have a good tenant how can you handle a tricky situation in a productive way? Equally, where do you stand legally if the situation is acrimonious?
To help you understand the best path for you and your situation, it benefits to know what your legal position is on rent arrears:
● As things stand, if your tenant has an assured tenancy, landlords can serve notice, usually under Section 8 to ask a tenant to leave. This requires you to have grounds for eviction, and tenants must owe at least two months’ rent at the time the notice is served.
● You can't legally evict a tenant without a court order.
● You can also pursue the outstanding debt through the courts, as the unpaid rent is considered a breach of the tenancy.
● If there was a deposit that's appropriately protected you might be able to put that towards the rent arrears. Alternatively, you can look to recover rent through Small Claims Court or from a guarantor if there is one.
It's important to note that under the upcoming Renters' Rights Bill a few changes will come into place regarding eviction. The main points include:
● Section 21 evictions (sometimes referred to colloquially as 'no-fault' evictions), will be abolished and landlords will need to use a Section 8 notice with valid grounds for possession. Where tenants fail to vacate at the expiration of the notice, landlords will need to seek a court order to evict a tenant on either mandatory or discretionary grounds.
● The threshold for mandatory eviction due to rental arrears will increase from two to three months, with the notice period extended from two to four weeks.
● A protected period will be introduced at the start of a tenancy.
Key things to consider include:
● Notice must be served using the correct form and meet necessary legal requirements to be valid. For example, put warnings as well as eviction notices in writing.
● Make sure you keep copies of communications and documentation.
● Give tenants plenty of notice to address a situation.
● Try to foster positive lines of open communication early on, whether it's directly or through a letting agent you trust.
Find out more about eviction and rent-setting with the new Renters’ Rights Bill
While an eviction notice might be the only way to handle things if relationships have soured, if you have a good tenant who has fallen into difficulty, it may be that you can come to an agreement to make the situation work.
For example:
● Encourage open communication from the start of the tenancy before anything has occurred. It's always better if tenants come to you or the letting agent if they anticipate a problem.
● Raise the issue early on after a missed payment so that it doesn't get out of control.
● Give your tenant time to explain. They may be dealing with temporary cash flow issues, job loss, or a banking delay. If a missed payment is out of character and they’ve been reliable, consider their explanation seriously.
● Look for short-term solutions such as a payment plan that breaks the arrears down into manageable amounts with an agreed deadline.
● Always put everything in writing - even if it's to follow up on a phone call and detail what was said.
● Keep detailed and accurate documentation of what's been paid and when, as well as what hasn't been paid and when it was due.
● If you're thinking about taking money out of the deposit, consider it carefully so as not to sour a good relationship, and always give advance notice.
● Ask a trusted letting agent for advice.
The most important thing to do is keep documentation up to date, including clear and accurate records of all health and safety certificates, rent payments, arrears, breaches of tenancy and so forth, so there’s no debate about what was due, when, and why. A good letting agent will make sure that they keep a record as well.
● Monitor and track rent payments including dates, amounts paid, and outstanding balances.
● Notify tenants of late payments within three to five working days in writing, allowing for delays in the banking system, but always being polite and calm.
● Try to identify the cause of the problem so you can understand if it's a one-off or a bigger issue.
● Offer practical solutions if appropriate.
● Protect your legal position. If the arrears reach the two (or three) month criteria for a Section 8 notice, prepare documents correctly and carefully so you can take legal action if resolutions fail.
● Never resort to unlawful evictions - only do so through official channels.
● Always keep accurate records and retain them for at least six years.
Read our complete landlord's introductory guide to the Renters’ Rights Bill
Chestertons is the premier London lettings and estate agency with more than 200 years’ experience and a team of experts offering a range of services from a full-time compliance department to valuations and management, for both long- and short-term lets. If you would like to find out more about working with Chestertons contact your local Chestertons letting agent at any time.