Resolving Rent Arrears in 2017
What If My Tenant Doesn’t Pay the Rent?
As a landlord, this is likely your number one fear. Depending on your own situation, you could be relying on your tenants paying the rent to cover your own mortgage costs, your bills, to run your business as a portfolio landlord, or to put into your pension pot. A tenant not paying the rent is serious, particularly if rent is your primary or exclusive income source.
Why Don’t Tenants Pay the Rent?
It is important to recognise that the vast majority of tenants who fall into arrears don’t do so on purpose. There will be times when a tenant isn’t getting along with a landlord and so decides to withhold the rent, but most of the time there’s a genuine underlying reason why you’re not getting your rent. This doesn’t help you – you can’t save or spend someone’s explanation after all – but it’s useful to understand why a tenant is in arrears as it can inform your next steps.
Tenants may fall into arrears if:
- They lose their job
- They have an unexpected drop in their hours or their wages
- Their overall cost of living means buying essentials leaves them short when it comes to paying the rent
- There is a change in their life circumstances which suddenly impacts their household income, such as a relationship breaking up or a joint tenant moving out
- Of these circumstances, the only one you as a landlord can perhaps do any preparation for is the final one, though if one half of a couple moves out two months before the end date on your tenancy agreement, you still need to collect the full rent for those two months.
How to Take Action When Tenants Fall into Arrears
For many landlords, a tenant not paying the rent is an unusual occurrence. So, when the rent doesn’t arrive on time, what do they do? There is no suggestion landlords should be getting on the phone or writing letters one day after the rent was due, but at the same time this situation shouldn’t be allowed to drift. It is far better to address the situation sooner rather than later, otherwise before you know it the tenant will be eight weeks in arrears and you’ll be contacting the council to have housing benefit paid directly to you, or be looking at how you can start eviction proceedings.
Making Your Position as a Landlord Clear
While your assured shorthold tenancy agreement states the rent amount and the day it is due, when the rent is late it is time to get in touch with your tenant. Depending on the type of relationship you have with your tenant you might use informal contact at first, such as a text message or a short email. Communicating in this manner is not a problem, but you should be prepared to escalate your communication quickly should the rent still not be forthcoming. The bottom line is that if people are having financial problems and are unable to meet all their obligations, the creditors shouting the loudest and contacting them most frequently are the ones that are likely to get paid.
Use Straight Talking, but Offer Solutions
As a landlord you need to be clear about the consequences of your tenant not paying their rent:
- They could lose their home
- They could face legal action
- They could affect their ability to rent another property in the future
Yet at the same time, you can offer solutions based on their circumstances:
- Agree for them to repay their rent arrears over the next few months by way of increased rent payments until they have caught up
- Accept the remaining one month in arrears until a specific time when you will expect to be paid or to be able to discuss a repayment plan
- · Ask them to pay what they can this month, then hold the remaining balance in arrears subject to a further discussion
- What works for each landlord will be different, so choose the approach that fits your business as well as your relationship with your tenant. If you have a tenant in a situation where they “can’t pay” this will usually be easier to deal with if you have a tenant who simply “won’t pay.” In the latter situation you may wish to, and be entirely justified in doing so, take a tougher approach.
Should I Factor Tenant Circumstances into Whether I Put the Rent Up?
Many landlords admit to struggling to balance the need to manage their property or their portfolio as a business versus the human element of knowing their tenants are helped if you keep the rent at its current level. The bottom line is that you manage your property as a business, so you need to look after yourself first and foremost. At the same time, it is prudent to consider your tenants’ circumstances before you decide to put the rent up, without this being the primary or only influence on your final decision.
In some situations, you may well face a choice between putting up the rent knowing the likely outcome in a few months’ time is your tenants falling into arrears, or serving a section 21 notice, hope your tenants leave without the need for eviction proceedings, then advertising the property at the higher rent while accepting you may have a void period. This isn’t an ideal choice for landlords, but depending on your circumstances it could become reality in 2017.
As with the option of initiating informal contact over rent arrears, it may be worth having an informal discussion with tenants if a rent increase is likely to be on the cards in 2017 and you think it may place the tenants in difficulty. If you are going to be putting the rent up in 2017, think about the different ways you can approach this with your tenants.
Dealing with Tenants’ Rent Arrears in 2017
If you find yourself with tenants falling into rent arrears in 2017, make sure you take action to deal with the situation rather than hoping it will resolve itself. While some tenants will catch up in time themselves, it is far better to open lines of communication with your tenants at the earliest opportunity and look to resolve the situation in a positive and proactive manner. Though in some cases, tenants falling into rent arrears will lead to you needing to instigate the eviction process, by taking action and speaking with your tenants as soon as you can, you will usually be able to work out a solution that both helps your tenants and ensures you get all your due rent.
Average tenancy deposit edges closer to £1,000
The average tenancy deposit paid by tenants in England and Wales stands at £970.18, but in London the figure has reached a record-high of £1,831.14, on average, according to The Deposit Protection Service (The DPS).
Sunderland had the lowest average deposit, with the figure for properties with its ‘SR’ postcode averaging less than three times lower - £490.13 - than that for London.
When renting out a property, most landlords choose to take a deposit from the tenant prior to the tenancy starting. The deposit gives a level of protection to landlords and means that should the tenant breach the terms of the tenancy agreement, such as causing damage or not paying rent, you can then make appropriate deductions from the tenant’s deposit.
Deposits taken on assured shorthold tenancies in England and Wales by landlords or letting agents must be protected within 30 days in any one of three government-backed insurance based or custodial deposit protection schemes operated by MyDeposits, Deposit Protection Service (DPS) and the Tenancy Deposit Scheme (TDS).
Insured scheme
The insurance product enables landlords or agents to retain the deposit during the tenancy but in return pay a protection fee to the scheme.
Custodial scheme
The custodial scheme allows landlords or agents to hand over the deposit for protection during the tenancy, with no fees attached. The scheme is funded entirely from the interest earned from the deposit pool.
There are separate tenancy deposit protection schemes in Scotland and Northern Ireland.
The three appointed scheme administrators in Scotland are Letting Protection Service Scotland, Safedeposits Scotland and MyDeposits Scotland.
In Northern Ireland, the schemes are Deposit Scheme Northern Ireland, MyDeposits Northern Ireland and Letting Protection Service NI.
But although it has been mandatory to hold a tenancy deposit in a tenancy deposit scheme since 2007, as many as 300,000 landlords are estimated to be running the risk of a heavy fine for not placing money into a government authorised scheme, research reveals.
Tenants can apply to a local county court if they think their landlord has not used a deposit protection scheme when they should have, and if found guilty, the court can order the landlord to pay up to three times the deposit within 14 days of making the order.
Landlords could also face penalties if their agent failed to comply with the tenancy deposit regulation.
Julian Foster, managing director at The DPS, said: “It’s important that landlords have protection against damage and other problems that can arise when they rent out property, but tenancy deposits can be demanding sums for tenants to raise when they move.
“However, both parties can have peace of mind over the money when it is protected with The DPS, with our secure and easy processes backed up with a free, impartial Dispute Resolution Service on the rare occasions it is needed.
“The DPS is the UK’s largest protector of tenancy deposits, and we’ve been entrusted with over 4.7m since launching a decade ago.”
Private rented sector has major role to play in preventing homelessness
The appalling rise in the number of people sleeping rough in England illustrates the importance of private rented accommodation, according to The Deposit Protection Services (The DPS).
More than 4,000 people a night have been sleeping rough on England’s streets, up 16% year-on-year, according to the latest figures from the Department for Communities and Local Government (DCLG).
The data shows that more than half of councils in England recorded an increase in rough sleeping compared with the year before, which is a shocking rate.
The government said it was determined to help the most vulnerable and was investing £550m to tackle the problem, but that is unlikely to stop thousands of desperate people from being forced to sleep rough.
Reacting to figures published by the DCLG, Julian Foster, managing director at The DPS, said: “Everyone should have the right to a safe, warm, secure home, and the rise in rough sleeping is sad news for communities across the country.
“A healthy rental sector plays a vital role in combatting homelessness by providing housing options that suit individual circumstances, particularly when house prices are so high.
“Whether it’s because they are saving for their own property or wanting greater choice over the length of their occupancy, tenants need the diversity of housing choices that renting provides, and it’s vital we continue to work with government to ensure renters have affordable, flexible and financially secure options when they select a home.”