UK: Dealing With Rent Arrears – Some Different Approaches

Last Updated: 2 February 2009
Article by Tessa Shepperson, BA, LLB, Solicitor

In these credit crunch days we are seeing a lot of tenants struggling to pay their rent, and many landlords are finding a higher than average level of rent arrears. This has serious implications, as mortgage and other payments still need to be made, and many landlords rely on the rent for much of their own income. What is the best way to deal with a tenant who falls into arrears? Is it possible to resolve matters without having to go to the courts?

This article gives some suggestions on how you may be able to sort things out amicably with your tenant. They will not be appropriate for all situations, but are worth considering, even if you decide not to use them.

Be informed

The first point is to keep on top of your finances so you know when your tenant first falls into arrears. This is the time when you are most likely to be able to rectify matters. Once big arrears have built up it is often impossible for tenants ever to pay them off. It is important that this situation is not allowed to arise.

Make sure you know when your tenants' rent payments are due and check that they are received. If your tenant pays by standing order or BACS, check your bank statements regularly. This can easily be done online.

First steps

If your tenant fails to make a payment you should immediately contact them about it. There is no need to do this is an aggressive way, this could be counter productive. The non payment could be a genuine oversight or a mistake made by their bank.

To a certain extent how you deal with things will depend on the tenants history and your relationship with them. However assuming that you are on good terms, the best thing initially perhaps is to contact them personally to find out what the problem is. Ring them up and ask if they are aware that their rent has not been paid, and if there is a problem? Hopefully they will be grateful to you for letting them know, and will immediately get on to their bank!

However in the current economic climate, it is likely that there will be some other reason. They may have lost their job for example, or may be in financial difficulties for other reasons. If so you may be able to help them, and it is important to deal with them in a way which keeps this possibility open. For example, if they refuse to speak to you, this may be just because they feel too embarrassed or are frightened. Although there are tenants who behave badly, most tenants are genuine people who would prefer to deal with things properly. If they don't it is often due to problems beyond their control.

In most cases, as well as trying to speak to the tenants personally, you should also send them a letter just stating that you have noticed that their rent has not been paid, and asking them to contact you about it. This first letter should be written in a friendly style and indicate that you will be willing to assist them if possible. This may persuade a tenant who initially has been avoiding you, to get in touch.

Even if it looks as if things have been sorted out by the phone call, it is still advisable to send a letter, just confirming your conversation and setting what has been agreed (e.g. that they will contact their bank and arrange for the payment to be made immediately). When the payment is made, you could also write and thank them for dealing with the problem so promptly.

However if the tenant fails to respond to your telephone call or to your letter, it should be followed up by a less friendly letter, warning that failure to contact you or to pay the rent due could result in the loss of their home.

Helping tenants in trouble

If after speaking with your tenant it is clear that they are genuinely in financial difficulties, it may be possible to assist them so that they can remain living in the property. This can prevent the sort of situation which often arises where the tenants just give up, stop paying rent and wait to be evicted. Here are some scenarios and suggestions.

Housing benefit/Local Housing Allowance.

If it looks as if your tenants will be eligible for benefit, you should suggest that they make an application, and perhaps give them some assistance. Some tenants find the forms difficult and will appreciate your help. It is important however that at the same time you ask them to sign a letter of authority, authorising the benefit office to discuss their application with you. If you don't do this, the Benefit Office will refuse to talk to you, as doing so would be in breach of the data protection regulations. Perhaps tell the tenants that provided they apply promptly and sign the letter of authority (so you can speak to the Benefit Office about the progress of their claim and when you can expect payment), you will not take any further action against them and will wait for their application to be processed.

Note that tenants will now receive payments under the new Local Housing Allowance (LHA) system. Unlike the old housing benefit scheme, this prohibits payments direct to the landlord,. If you are worried that your tenant will be tempted to spend the money on other things, you could consider asking them to get their LHA paid into a ring fenced credit union account, which will then make payments direct to you. Many credit unions will set these accounts up as part of their service. You will find a list of some who provide a list of this service here.

Landlords should also note that if tenants are receiving benefit, once the rent is more than eight weeks in arrears, you can write to the Benefit Office and request that payment be made to you in future. Under the regulations, the Benefit Office should do this.

If the reason the rent is over eight weeks in arrears is excessive delays on the part of the benefit office, it might be worth serving a section 8 notice on the tenant, citing the mandatory rent arrears ground, ground 8, and arranging for a copy to be sent to the benefit office. This will hopefully galvanise them into action as it would be embarrassing for them if the tenant is evicted due to their delays! Tell the tenant what you are doing and explain why. You could also suggest that they lodge a formal complaint with the benefit office about the delays (making the point that the delays have put them at risk of losing their home) and perhaps speak to their local Councillor. The more fuss that is made, the more likely it is that that benefit office will get the application dealt with.

If the first payment is likely to be a substantial one, you should try to get the benefit office to pay at least this first payment direct to you, to guard against the tenant deciding to spend the money (which could be for quite a large amount) on other things. Often they will agree to do this.

Reducing the rent.

If your tenant is in genuine difficulties, for example they have lost their jobs, you might want to consider some sort of rent reduction. Bearing in mind that the level of reduction you can offer will depend on what payments you have to pay yourself in respect of the property (especially any mortgage payments), as well as the tenants financial situation. However, here are two examples:

If the tenant is suffering only a short term difficulty and is likely to be able to afford to pay the full rent in a couple of months, you could agree to a lower rent for that period of time, to tide them over. Or if you think that they could afford to pay the full rent given time, you could agree a repayment program with them.

If the tenant has had to take lower paid employment, you could consider lowering the rent permanently. This may be appropriate if the tenant is a very good tenant you would be unwilling to lose, and provided your own expenses are still covered.

The advantages of reducing the rent in appropriate cases are that:

  • You will continue to receive at least some rent, which will allow you to pay your own expenses
  • You will have a grateful tenant, who will probably make payment of rent and looking after the property a top priority in future, and
  • You will avoid a situation where the tenant stops payment altogether and you have to incur the costs of eviction, rent loss during that period, and the costs of finding a new tenant after that

However this sort of accommodation should only be given to otherwise good tenants, who have been upfront with you about their situation.

On a practical note, any agreement should be recorded in writing, and the tenant should be warned that any failure to make the payments as agreed will result in legal proceedings. It might be an idea to serve a possession notice anyway, on the basis that it will not be used if the tenant keeps to his word.

Make sure you keep copies of all letters and notices sent to the tenant, plus if you serve a notice you should keep a record of when, how and by who the notice was served. Unless your tenant acknowledges service, it is not a good idea to serve notices by post, as it can be difficult to prove.

Local Authority re-housing.

If it is clear that your tenants are not going to be able to afford the rent long term, they may in many cases be entitled to apply to be re-housed by the Local Authority. Sometimes they will be entitled to ask to be re-housed as of right. The rules for this are as follows:

  • They must be homeless or threatened with homelessness. This will technically be the case if you serve a possession notice upon them.
  • They must come within the category of 'priority need'. Essentially this means pregnant women, families with children and people who are considered vulnerable, for example due to illness or old age.
  • They must not be 'voluntarily homeless', i.e. they must not have done anything which has contributed to their homelessness,

It is the last item which often causes the most problems. For example it means that if tenants move out of the property before they are re-housed, for example if they go to stay with relatives, they will lost their right to be re-housed. Landlords often do not understand this, and get frustrated when they consider that their tenants are behaving improperly by staying on in a property after an eviction notice has been served on them, or if they are not paying the rent. However generally the tenants will have no choice. They have to stay until they are evicted or they will lose their right to be re-housed. In most cases, due to a shortage of suitable accommodation, local authorities will not re-house until there is a court order for possession, indeed sometimes they will not re-house until there is a bailiffs appointment.

There is another aspect to this however. If the Local Authority learn that tenants were evicted because they failed to pay rent, they may consider that they are 'voluntarily homeless' and seek to avoid re-housing them on this basis. This is most likely to happen if the tenant has been evicted on the basis of rent arrears. Many local authorities have a shortage of available accommodation and try reduce the number of families they have to re-house. It will therefore generally be to the tenants advantage for proceedings for possession to be brought using the section 21 procedure, as this does not imply any fault on the part of the tenant.

It could therefore be worth while the tenant and landlord reaching an agreement on the basis that the landlord will use the section 21/accelerated possession procedure (which may mean a slightly longer wait for possession if the section 21 notice has not yet been served) provided the tenants pay the rent in the meantime, or if this is impossible, as much as they can afford. This will be to the landlords advantage as, although he may not receive the full rent, at least he will not be out of pocket, and the accelerated procedure is (once it can be started) generally quicker and more certain (and cheaper if solicitors are being used). It will be to the tenants advantage, as if the Local Authority ask the landlord why they are bringing proceedings to evict the tenant, the landlord can just say it is because they want the property back (they do not have to give any other reason). The tenant will not then be at risk of being found voluntarily homeless and refused re-housing. Unless perhaps he reneges on his promise and the landlord informs the Local Authority of the rent arrears.

Un co-operative tenants.

The above situations are all solutions to problems which can be agreed when tenants have been willing to discuss their situation with you and co-operate. However if your tenant refuses to speak to you, or to respond to your letters, and continues to default on rent payments, you should have no hesitation in moving as quickly as possible to bringing proceedings for possession.

In most cases, a section 21 notice should be served immediately, and as soon as the rent arrears reach eight weeks/two months, a section 8 notice citing the mandatory rent arrears ground should be served on the tenants. Notices should be delivered by hand so that service can be proved. If you think the tenant may deny service, take an independent witness with you. Be careful to ensure that possession notices are correctly drafted as Judges are very particular and will often refuse to grant possession if the paperwork is not in order.

You should then issue proceedings as soon as the notice period has expired, Bear in mind that it can take up to three months (sometimes more) before possession can be obtained from an uncooperative tenant, so it is important that you deal with things promptly. Bear in mind also that it is generally rare for landlords to recover unpaid rent from tenants in this situation, so it is important move quickly to minimise your losses.

Conclusion

It looks as if we are in for difficult times, and many tenants (and indeed landlords) will find that, through no fault of their own, they are unable to meet all their financial commitments.

If you treat tenants with respect and consideration, and try to help them find a way around their problems, then they are likely to repay you with loyalty and respect in turn. It is to nobodies advantage to have tenants evicted through the courts, with all the stress and expense that will involve. Much better to have a property occupied and rent being paid. Even if the rent paid is less than originally agreed, this will be better than five to six months arrears followed by a void period and the expense of finding a new tenant.

However if tenants fail to co-operate with you, you should have no computation in serving possession notices and issuing proceedings for possession at the earliest possible moment. This will minimise your losses. It will also (if you rent out several properties) send a message to your other tenants that you are very fair if tenants co-operate with you, but hard if they do not.

For further information please see the New Landlords Guide on the Landlord-Law web-site. Landlord-Law members can also read detailed articles on choosing letting agents and problems with letting agents in this section ).

(Note – This article is written for landlords in England and Wales UK)

www.landlordlaw.co.uk

© Tessa Shepperson, January 2009

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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