What should I do if my tenants can’t pay rent?

While the Government is beginning to carefully loosen lockdown measures, anything close to ‘normal’ is still a long way off. The Government has extended their furlough scheme until March 2021, but there is no way to completely erase the job losses and financial insecurity caused by the economic impact of the coronavirus outbreak.

Many landlords may have already had tenants struggling to pay rent, while others could find tenants struggle at a later date. 

 

Do I need to stop charging rent?

Many tenants will be able to pay their rent as normal, even if their employer is unable to pay them or their freelance work has dried up. 

The Coronavirus Job Retention Scheme has been extended by another four months to the end of October to allow workers of struggling businesses to continue to receive 80 per cent of their current salary. From the beginning of August, though, the Government expects furloughed workers to return to work part-time, with employers being asked to pay a percentage towards the salaries of their furloughed staff.

The employer payments will substitute the contribution the Government is currently making, ensuring that staff continue to receive 80 per cent of their salary, up to £2,500 a month.

The Government is still offering freelancers and those who are self-employed 80 per cent of their net monthly earnings averaged over the last three years, or £2,917, whichever is lower.

Still, there are a number of reasons why tenants might be struggling to pay rent at this time. 

For some, the 20 per cent drop in salary could still have a serious impact on their finances. Some businesses have also chosen to let staff go rather than keep them on furlough.

While the Self-Employment Income Support Scheme (SEISS) promised parity between employees and the self-employed by similarly offering workers a government-paid wage worth 80 per cent of their average monthly earning, it only opened for applications on the 13 May. This means that many self-employed tenants could already be in some financial difficulty. Plus, not all freelancers or those who are self-employed are eligible for support. 

Therefore, many tenants will be worrying about their finances for the foreseeable future. It is important to keep an open line of communication with tenants to ensure they feel comfortable discussing any difficulties sooner rather than later. 

Remind them of the financial support they are able to access from the Government and the legal protections put in place to prevent evictions. Hopefully then they will feel able to contact you if their financial circumstances change or they become unwell. 

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What if my tenants cannot pay rent?

The Government put several regulations in place in March to protect tenants who are unable to afford to pay rent due to COVID-19 and also help landlords weather a pause in payments. 

All new and ongoing possession claims have been temporarily suspended by 90 days from 27 March. The Government has the power to extend this period if they feel it is necessary. 

The Government also introduced a ‘mortgage holiday’ of up to three months for landlords whose rental income is affected. It’s important to note that you can only apply for this if you’re able to prove that tenants in your buy to let property have been affected and you’re up to date on your mortgage payments. Mortgage holidays are negotiated with the mortgage providers and not the Government, so you should contact your mortgage provider to learn more if you need to.

These schemes only offer tenants a temporary reprieve from rental payments, though. They are still liable for all rent owing under a tenancy agreement while they live at the property. 

Ideally, tenants will inform you of any financial struggles before falling behind on rent. You should also keep a closer eye on automatic rent payments than usual, checking in on tenants in a calm and reassuring way if there are any discrepancies. 

Keeping things warm and friendly with tenants will make it easier to offer a more flexible payment arrangement – perhaps changing payment dates, or allowing partial rent payments for a number of months with an agreement to recoup the rest at a later date. 

Keep repayment agreements reasonable and flexible, but firm. If you reach an agreement, remember to capture everything in writing to make sure that both parties are clear on what has been agreed and how long for.

Landlord Action has put together a template Rent Repayment Agreement, which landlords can purchase and use to set out the terms of the repayment and also the date on which a tenant will give vacant possession (if applicable). 

“Our recent survey found that 74 per cent of landlords have already been contacted by tenants who are struggling to pay rent due to reduced or terminated employment resulting from the pandemic, with the reality that life will not return to ‘normal’ for some time, the most sensible solution is mediation, particularly as landlords will be unlikely to be able to gain possession of their properties for six to nine months or more.” 

Paul Shamplina, Hamilton Fraser Brand Ambassador and Landlord Action Founder  

With this in mind, the Property Redress Scheme has launched a tenancy mediation service to assist parties come to negotiated agreements regarding any tenancy related disputes.

“These are unprecedented times and all landlords must now work collaboratively with their tenants to come to solutions to get us through this public health crisis and move forward after,” Paul adds. 

Find out more about the PRS tenancy mediation service. Plus, read everything landlords and agents need to know about COVID-19 with our full guide.

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