Rent arrears: What should a Landlord do?
Having a rental property can be a great investment. However, tenants not paying rent is one of the issues which commonly arise on being a private landlord.
A tenant who has fallen into rent arrears or who fail to pay on when it’s due is certainly one of the biggest concerns and can be one of the most frustrating and time-consuming aspects for UK landlords. Worse comes to worst, it could might mean the difference between - a landlord meeting their monthly mortgage payments or falling into arrears themselves.
However, as stressful as it is, as a landlord, it is important to remain professional and follow the right process to resolve the situation smoothly.
If you are having trouble in dealing with a tenant not paying, here is a process you need to follow. This will help you on what to do to avoid dispute with your tenant and ensure in getting you through this challenging time.
1. Keep records of payments
Before problems arise, it’s a good idea to have efficient systems in place with proper documentation. Keep a record of when rent payments are due and when they are paid by your tenants.
Send receipts to your tenants every month when their rent payment comes in- showing the payment date, the amount paid and the outstanding balance.
If you can’t resolve the situation, you may want to make an application for possession against a tenant based on them not paying rent. You will need copies of all rent payment transactions to prove that you took all reasonable and legal measures to resolve the situation.
2. Talk to your tenants
If your tenant has missed a payment, the first step is to contact them and bring up the topic politely. This, again, will help you to maintain a good relationship. A phone call or text reminder, followed by a letter or email will usually suffice.
It's important to remember there is a difference between a tenant who can't pay their rent and a tenant who won't pay their rent. Most common reasons for late payment are:
· a mistake by the bank
· your tenant just forgot to do money transfer
· might be having cash flow problems
· your tenants were a couple but split up
· your tenant is facing personal issues
· your tenant is simply refusing to pay the rent
Communication is key here, so find out what position your tenant is in and see if you can agree a payment plan.
3. Negotiate a payment plan
If it turns out that your tenant is having financial difficulties and your tenant wish to pay their missed payments, you may arrange a payment plan like - the tenant could pay you a little more each month until they pay their outstanding debt or reduce the rent. But of course, this is a case-to-case basis.
Anything you agree needs to be documented, so everyone knows what they’re signing up to. What you choose to do depends on your relationship with your tenant and your own circumstances.
4. Contact the Guarantor
If a guarantor has co-signed the tenancy, you should get them involved in the conversation as well. Write to them and tell them about the rent arrears.
If you can’t reach an agreement with the tenant, you may have to take action to recover the rent from the guarantor. They’ll be keen to help you resolve the situation, so they don’t end up being liable for the money themselves.
Guarantors are usually liable for unpaid rent and can be taken for court if they refuse to pay.
5. Claim possession of your property
If all else fails after reaching out to your tenant and contacting the guarantor, it may now be the time to consider to begin the process of seeking possession of your property.
Under the Housing Act 1988, there are two routes you can take to evicting tenants with assured short hold tenancies – a Section 21 notice or a Section 8.
Section 21 Notice
If the fixed term of the tenancy has ended, or you have a periodic tenancy, you can use a Section 21 notice to seek possession, without providing a reason.
This notice is known as a ‘no-fault eviction’ notice. Serving this notice may seem contradictory if you are trying to evict a tenant that has not paid rent, but it may be worth considering as it can make for a smoother process as the tenant won’t usually be able to argue against the notice in court. This notice ensures mandatory possession.
You can only do this ‘after’ the first four months of the tenancy. You can’t serve a Section 21 during the first four months of a tenancy or if you have failed to meet certain obligations as a landlord, such as:
· having a landlord’s license if the tenancy started after April 2017
· protecting your tenant’s deposit in a government-backed scheme
· giving your tenant copies of the property’s energy performance certificate (EPC)
· the government’s How to Rent Guide
· if the home is a house of multiple occupation, it must have an HMO license from the council
If you do not meet these conditions, your Section 21 Notice won’t stand.
However, arrears cannot be claimed via a Section 21 Notice. You are free to pursue separate debt action within 6 years to claim your money back if you wish to recover your losses.
Serve a section 8 eviction notice
A Section 8 Notice can be used if the tenant is persistently late with paying rent or if they have broken the tenancy in another way. It is to inform them they have 14 days to pay their outstanding rent or be taken to court.
You should follow official eviction procedures to a tee to avoid problems further down the legal process when regaining possession of your property.
To give your tenants notice using a Section 8, you must:
· specify on the notice which terms of the tenancy they’ve broken
· give the tenants between 2 weeks’ and 2 months’ notice to move out, depending on which terms they’ve broken
Your tenant may dispute the eviction, so you need to be ready with evidence of unpaid rent and your efforts to resolve the issue.
A Section 8 Notice is useful if the tenant owes you lots of money and either the tenant or guarantor has the means to pay. However,
6. Go to court
After a number of attempts and efforts to get your tenants pay their rent, you are entitled to take legal action to seek possession of your property. You can also make a claim against your tenant for the arrears and reasonable costs incurred.
Make sure you have collected all the evidence that you have followed the correct process, otherwise the judge will dismiss the case and may rule against you if there is no reason for the tenant to be evicted. If the court rules in their favor, you could be liable for their legal expenses.
But if the court issues a money order against the tenant, this will give you the means to claim your money back while also gaining possession of your property in the same process. The court can order the tenant to do one of the following:
· Leave the property before a specified date stated in the order
· Allow the tenants to stay as long as they pay or obey the conditions of the order
· Pay you a specified amount
· Leave the property and pay a specified amount to cover rent arrears, court fees and legal costs
Section 21 vs Section 8
Section 21 and Section 8 of the Housing Act 1988 are what landlords typically use to evict tenants living in England and Wales.
There are pros and cons to both, however – especially when a tenant is in rent arrears.
· If your tenant’s fixed term agreement is coming to an end, you may be able to serve a section 21 notice rather than a section 8.
· A section 21 notice can be a smoother process, but you won’t be able to make a claim for unpaid rent unless you serve a section 8.
· If the tenant has the means to pay the rent arrears, or they have a guarantor, a section 8 process may be the best approach.
· But if they have no means to pay and no guarantor, but their fixed term is ending, a section 21 process may see you regain possession of your property quicker – although without immediately recovering the rent owed.