The National Landlords Association (NLA) has released a guide on helping landlords deal with, or prevent, rent arrears.
Rent arrears are one of the biggest risks that landlords face, as lack of rent payments can have a huge impact on their letting business.
Following the NLA’s Effective Letting campaign, the guide is designed to emphasise good practice and avoid common problems. This will reduce the risk of issues such as rent arrears, and ensure a positive tenancy for all involved.
Debt can signal real trouble for property investors, as landlords are not able to simply end a contract if they do not receive payment. However, landlords are always obliged to maintain their responsibilities.
After non-payment, the court can only terminate a tenancy agreement. At this stage, vacant possession is only granted if two months of rent has been missed.
As the housing industry is so significant, protections must be in place to avoid landlords and agents abusing their position.
But this can cause problems for landlords who must reduce any risks, cope with issues if they arise, and continue earning a living.
It is not immediately obvious which types of property or tenants could lead to rent arrears. Due to the range of people it can affect, it can be hard to identify specific tenancies that will experience this problem. However, there are still a number of signs that can avoid further damage.
Landlords can plan their spending to prepare for any possible issues in the future. The NLA advise to plan the letting business on the basis of ten out of 12 months rent. They believe that this will allow for unexpected costs, and help to cover payments if these problems arise.
This will not, however, solve any problems that the tenant may have. Before entering a new tenancy, landlords can put in place protections to reduce troubles.
Landlords should thoroughly vet tenants to find out as much as possible of their personal circumstances. Common checks include collecting proof of income, an employer’s reference, and a previous landlord’s reference.
These checks will determine whether the tenant has sufficient income and no recent history of non-payment. Conducting a credit check can also highlight any debts.
Landlords could use a professional tenant checking service, such as the NLA Tenant Check, to gain an efficient and detailed check.
If appropriate checks have been undertaken, there are insurance options to further protect against loss of rent.
Landlords should fully understand what the cover includes, and which is most suited to the individual tenancy.
Some options request certain tenant references, which could restrict some tenants from being covered. The length of cover is also important to consider, as some will not protect if arrears arise later on in the contract.
It could also be wise to require a guarantor, a practice that is commonly used in student properties. The guarantor will provide payment if the tenant cannot.
Guarantors should live in the UK and own their own home. Guarantors should be fully aware of their duty, and should be in place for the whole duration of the tenancy.
Landlords should sometimes use their experience and instincts to try to understand if a tenancy will work out. This does not mean being judgemental of all prospective tenants, but some serial bad tenants will use similar tactics to appear risk-free. Noticing these and ensuring they do not cloud the landlord’s judgement could avoid problems in the future.
If something does not feel right, professional checks and suitable insurance can cover any doubts.
The tenancy agreement should detail how and when the rent is paid. If weekly rent is specified, then the landlord should provide a rent book.
Landlords should stay on top of payments, keeping receipts and enquiring immediately should payment not be made. A polite inquiry is completely acceptable. It may then be revealed that there was a banking error or admin issue. Tenants may have made a simple mistake. This way, landlords can work out problems with the tenant and allow for honesty. It should always be stressed that tenants should pay on time.
If the troubles seem to be more serious, a meeting should be set up between landlord and tenant to discuss the situation. Landlords should remain professional and keep records of all communication.
At this stage, landlords may be able to make a payment plan with tenants, which would help both parties resolve the issue. If the problems seem more serious and long-term, the option of ending the tenancy may be wise. Landlords should also suggest support from the Government.
If the tenant has landed in difficult circumstances, then they may be keen to end the tenancies. If both the landlord and the tenant believe this is the right outcome, both can leave the arrangement and move to more suitable options.
However, landlords cannot end the tenancy without the tenant’s consent, unless they receive a court order. If a landlord tries to make the tenant end the agreement without this, they could be prosecuted for harassment or illegal eviction.
A strong landlord-tenant relationship can avoid these problems. It is important for the landlord to understand that the tenant will also probably have a lot of stress and pressure at this point, and the landlord should try to work out the best way to resolve the issue.
The reasons for falling into rent arrears should be identified as to assess the future. Most cases arise from a loss of income. In this case, the tenant may be eligible for housing support.
If they are more comfortable looking elsewhere for help, then the landlord can suggest:
- Citizens Advice Bureau at citizensadvice.org.uk.
- The Money Advice Service at moneyadviceservice.org.uk/en/tools/health-check.
- Step Change at stepchange.entitledto.co.uk.
If a payment plan can be agreed, this will allow the tenancy to continue, and both parties to work alongside each other.
If the tenant does end up moving out of the property, they can aid in the marketing process for replacement tenants, for example by assisting with viewings.
If a large amount of rent is owed, and there is a negative landlord-tenant relationship, then the case must move to court, where the landlord will seek possession, and a potential financial aware. The landlord should always obey proper practice and stay professional.