Landlord advice: A tenant repayment plan in the fallout of COVID-19
The coronavirus, lockdown orders and record job losses are having a major impact on the ability of some tenants to pay rent, with 62 per cent reportedly worried about being able to make rent payments during the pandemic. It’s not just tenants suffering though – landlords have been hit hard too, as whilst the Government has softened the blow with its mandatory mortgage holidays, its complete three-month suspension of evictions was not met favourably by many. With courts now not re-opening until the end of August, there are also likely to be delays in the court system of six-12 months due to a backlog build up during lockdown.
Whilst we’re not at the end of the tunnel quite yet, we’ve at least been teased with a glimmer of light as lockdown restrictions have started to ease, schools have started to reopen and businesses have started to shake off their cobwebs. For landlords, this is encouraging, as it points to a near future where all of the worries about missed payments that began piling up during the COVID-19 crisis begin to ease and we can all start getting ‘back to normal’.
But it’s not quite that simple. The repercussions of the coronavirus crisis are going to be felt for some time, perhaps even long after a vaccine is found and the economy starts to correct its course.
For landlords, this means drawing up long-term repayment plans with tenants who might have had their livelihoods devastated by the pandemic.
To help landlords to steady themselves and find their bearings, we’ve collected our thoughts, feelings and expertise on best post-lockdown practice into one place in an effort to provide some support and guidance in these troubled times.
Get a landlord insurance quote
Get a quote online in under 4 minutes
Plan of action
There are two key things that all landlords spend their working lives trying to avoid – void periods and rent arrears. Both of these hurdles have undoubtedly been thrust upon countless landlords across the country in the wake of the pandemic fallout and both have been known to financially cripple even the best landlords. So, the priority right now should be for landlords to ensure they have a plan in mind for dealing with rent arrears caused by the pandemic and avoiding any potential voids.
Sometimes tenants default through no fault of their own, and communication can help to solve the problem before it escalates. The most obvious practice we can all follow is to maintain a close and transparent level of communication with our tenants throughout the crisis and in the months that follow.
It’s not only about renting at competitive prices or having the best properties in the best location. Sometimes, landlords might need to sell themselves a little and remaining in constant contact is the most efficient way of doing this.
Moving forward this is going to involve a lot of landlords and tenants working together to make the best of a bad situation. There are plenty of tools available for those requiring help. The Property Redress Scheme tenancy mediation service can help both parties reach a payment plan for arrears accrued due to the pandemic.
“Mediation is a voluntary, without prejudice and confidential process, which allows disputes to be resolved much quicker and with less cost than court, as a landlord, it also enables you to demonstrate to the court that you have attempted to resolve your issues before coming to them.”
The situation is not going to be bleak for everyone. There are millions of staff currently being furloughed on either 80 per cent or 100 per cent of their wages and for them, it should be very much business as usual (although this could change when the Government’s coronavirus job retention scheme comes to an end in October).
Indeed, the NRLA has reinforced the importance of keeping rents paid where possible. There will be tenants for whom maintaining regular payments is untenable right now, of course, but that’s not to say that the pandemic has affected everyone equally.
With all the confusion surrounding almost everything right now, you’ll be more likely to have your tenants clear any outstanding arrears if it’s easy and straightforward for them to do so. Provide the forms for your tenants to pay by standing order and consider offering your tenants a small discount for paying their rent on time amidst such difficult circumstances.
Most landlords would agree to reduce the rent in order to retain a reliable tenant, it might be beneficial to consider rate reductions for those tenants that have been with you for longer as an incentive to keep them on board. With the uncertainty gripping the country right now, many tenants might have found themselves in a difficult financial situation and will feel as if they might need to either move back home with their parents until those finances recover or find cheaper accommodation. These are the tenants you might need to fight for, as the period between tenancies can potentially last months.
Many tenants might not be aware that they owe arrears or it might have understandably slipped their minds given the other worries currently affecting us all. This means, unfortunately, that it’s up to you to remind tenants of their responsibilities and to do so expediently to avoid having to take legal action. Always go for negotiation over litigation, because taking a tenant to court isn’t much fun at the best of times, let alone in the wake of a global pandemic when repossessions are taking 9-12 months due to the backlog caused by the current pandemic.
Get a landlord insurance quote
Get a quote online in under 4 minutes
While mortgage holidays have been extended for a further three months, they don’t come without a cost. Indeed, while a three month mortgage holiday only adds an average of £11.21 per month to a mortgage, the debt could add up to £665.08 over time and if stretched to six months, the break could end up costing as much as £1,331.95.
Therefore, if you are able to still make your mortgage payments in full then you should definitely continue to do so, though this will be determined by whether or not you’ve stalled or discounted rental payments for your tenants during the lockdown period.
Although the extended eviction ban is due to end on 24 August, landlords who have spent the last few months in limbo dealing with eviction claims and repossession orders should err on the side of caution and consider mediation first. There are likely to be new requirements on them to do so in the form of a ‘pre action protocol’ for all possession claims.
At the end of May the Government introduced a rent renegotiation code that applies to commercial tenancies. The key aim of the Government here is to encourage all players in the commercial property sector to shoulder the financial burden of the crisis.
Whilst we can try to plan ahead for what might happen, we have no way of knowing exactly what will. We’ve probably all grown tired of hearing the ‘new normal’ buzzword by this point, but that doesn’t make it any less relevant.
Ultimately, we’re going to see a period of adjustment for everyone that will require a lot of mediation and discussion. As the UK Government continues to revise and refresh the rules on a weekly basis, however, it’s for tenants to understand that landlords are business owners first and foremost, and for landlords to note the intense financial and other stresses that COVID-19 will have created for their tenants.
We are wading through unprecedented waters right now and the only way we’ll emerge on the other side is if we all remain calm, transparent and remember that we’re all in this together.
Find the answers you need to all of your landlord insurance related questions