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Rent arrears - five top tips for residential landlords

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Government Green Paper sets out a "fundamental rethink" on social housing

Following the festive period, tenants can often fall into rent arrears. Investing time at the start of the year to review your tenant’s rental payments can therefore help you identify issues at an early stage.

This is exemplified by the recent changes in the benefits policy. Since February 2018, there is no longer a seven-day waiting period for universal credit. This means that if universal credit is paid on time, claimants will wait five weeks for their first payment (instead of the previous six weeks). Although there is certainly benefit in the long term of tenants learning to manage their own payments, there may also be an increased risk of rent arrears if they are unable to manage their payments effectively.

Start your spring right with our top five tips for residential landlords:

1. Reduce the risk 

If you are looking to have new tenants in your property, make sure you carry out background and credit checks. It is also recommended to obtain references on prospective tenants. Although there is no guarantee that tenants will pay rent, taking the time to carry out checks can significantly reduce the risk of non-payment of rent. 

In assessing a prospective tenant's ability to pay the rent, the general rule of thumb is that their take-home pay should be equal to or exceed 35% of the rent amount. This rule can be used as an early indicator as to whether your tenant is able to afford the rent.

It is also useful to review your tenancy agreement. You may, for example, wish to include a clause in your tenancy agreement that requires a credible guarantor to guarantee payments in the event that your tenant defaults. 

2. Compliance

As a landlord you need to ensure that you have protected your deposit and complied with the statutory requirements.

Although tenancy agreements often include a clause that prevents tenants from withholding rent for disrepair, tenants may try to delay or withhold rent as an attempt to have issues resolved. In light of this, it is best practice to ensure that you are always in compliance and that you resolve reports of disrepair promptly to avoid delays in payment.

Early compliance is particularly important should you need to serve a notice on a tenant in the future.

3. Contact is key

Contact the tenant as soon as you are aware of non-payment. Not only does this make your tenants aware that you are on top of the rental payments but it could also encourage your tenants to pay more promptly in future.

If your tenant has failed to make a rental payment, you should ask why they are not paying. It may be a short-term issue that can be resolved or the start of a long-term inability to pay. If the arrears become unmanageable, it may be helpful to set up a payment plan with you tenant. Payment plans can allow for more frequent and smaller payments.

Either way, it is useful to identify the reasons behind non-payment to decide whether to come to an informal arrangement or to proceed with formal action. 

4. Check if there are any guarantors

If your tenant has no means to pay, it is useful to check your tenancy agreement to see if any guarantors are mentioned. You should check the precise terms of the agreement to understand the extent of the guarantor's obligations.

5. Formal procedure – notice

In practice, it is not always possible to come to a resolution informally, particularly when you have exhausted methods of communication with your tenant. If your tenant is in two months’ in rent arrears, you can seek to serve a formal notice on the tenant. This can be done by a s.8 notice and/or a s.21 notice. 

You will need to ensure that you have met the necessary requirements before issuing a notice. Taking the time to ensure that you have complied with the requirements will enable you to save time and money in the long run. If you need assistance in evicting your tenant, notice drafting or pursuing rent arrears, you can contact our team on 01616 966 229.

By Natalie Ekdawy, graduate paralegal in the commercial law team.