How to prevent your tenant falling into arrears

Falling behind with the rent is a landlord’s worst nightmare and the most common reason why landlords evict tenants. But what can landlords do to prevent their tenants falling into arrears in the first place, and how can they minimise the damage to both their wallet and their stress levels should their tenant fall behind with the rent?

According to the National Landlords Association, it takes an average of four months and £900 to bring a tenancy to an end. And that’s only the court and legal fees – not the loss of rental income and also any consequences of getting behind on mortgage payments.

Sadly, you can never be sure that your tenant won’t default on their rent – this is a risk that you take on when you become a landlord. However, you can take steps to reduce the chances of it happening.

How to prevent your tenant falling into arrears:

  1. Avoid renting to people with a history of bad credit – carry out a thorough due diligence check (or if you are using an agent make sure they do this), by looking at the bankruptcy and insolvency register or by using a tenant credit check service.
  2. Carry out a thorough reference check. See Total Landlord Insurance’s guide for more information or you can use a professional service such as Total Tenant Referencing.
  3. Make it easy for tenants to pay – provide the necessary forms for your tenants to pay by standing order and possibly even consider offering your tenants a small discount for paying their rent on time. For example you could offer a discount for payments made by direct debit or standing order.
  4. Establish a good relationship with your tenant – treat them well and not only are they more likely to look after your property, but you are more likely to find out sooner rather than later if there are any problems with their ability to pay
  5. Ensure that you have a tenancy agreement in place – This is essential if you subsequently need to issue a Section 21 notice. The government has produced a useful guidance document on tenancy agreements here.
  6. Ask for a guarantor if necessary, for example if your prospective tenant is a first-time renter
  7. Keep your property in good condition and carry out repairs promptly so as not to invite any complaints or reason for your tenants to default on the rent. Check out our guide on seasonal maintenance to ensure you keep on top of repairs.
  8. Take out rent insurance so that, should the worst happen, you will be covered. To find out more click here.

Despite your best intentions, some tenants will fail to pay no matter how reasonable you are, but if you can spot them in advance and avoid renting your property to them, you will save yourself a lot of time, money and stress.

We spoke to Paul Shamplina, founder of Landlord Action and regular contributor to Channel 5’s Nightmare Tenants, Slum Landlords, for his advice. First and foremost, when a tenant has fallen behind with their rent, Landlord Action always advises landlords to try and make contact with the tenant. Entering into dialogue can help uncover the reason quickly and then determine whether to come to some agreement to help the tenant through their difficulties, or start eviction proceedings.

 

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Sometimes tenants default through no fault of their own, and communication can help to solve the problem before it escalates. The tenant may simply have forgotten to transfer the money or could be experiencing temporary cash flow problems (obviously it is important to establish whether this is a one off or because the tenant is poor at managing their finances). Of course, it could be due to something more serious such as loss of job, illness or a relationship split.

Some landlords start considering eviction proceedings as soon as a tenant falls even a day behind on their rent, and others leave it too long. Paul Shamplina points out that many of us experience financial problems at some point in our lives and helping a tenant through a tough time could result in them being a loyal tenant for many years to come.

Sometimes, tenants withhold rent because they feel the landlord is not maintaining the property properly when repairs have been requested. Here, communication is key and landlords should be fulfilling their obligations as a landlord and ensuring that their property is well maintained. However, sadly there are cases where tenants think they can simply live rent free at the expense of their landlord. The advice from Landlord Action is that landlords who suspect a ‘professional bad tenant’ should seek help straight away.

Paul Shamplina suggests five key steps to take when a tenant stops paying rent:

  1. Contact them straight away – a polite phone call to enquire if there is a problem followed by an email as proof of communication is the first step
  2. Check with the bank – if the tenant claims payment has been sent, double-check with the bank or ask the tenant for proof. Give them a few days’ grace to rectify the situation
  3. Agree a payment plan – if the tenant hasn’t paid for whatever reason, agree how much and by when the payment will be made
  4. Put it in writing – write to the tenant confirming the payment plan you have agreed and what the next step will be if they fail to pay a second time
  5. Seek legal advice – If the tenant continues to not pay their rent, send a final letter stating that if payment is not made within seven days, eviction proceedings will commence with a Section 8 notice. Landlords should speak to a legal specialist to work out the best course of action from here.

Paul Shamplina concludes: “A buy-to-let property investment must be treated as a business – you have to ask yourself how long you would allow someone to keep using your services without paying for them? Allowing someone to live in your property rent free is the same! Communicate and be flexible where you can, but never allow a situation to get so bad that it puts you in financial jeopardy.”

If, despite your best efforts to avoid it, you find yourself in a situation where your tenant is in arrears and you are not able to resolve the situation without resorting to eviction proceedings, you must make sure you follow the correct legal procedure. Or to seek professional help call Landlord Action’s free advice line on 0333 321 9415 or visit www.landlordaction.co.uk.