Landlords, would you know what to do if your tenant fell behind on their rent?
Our step-by-step guide outlines the best ways to recover rent arrears and keep the dent in your rental profits as small as possible.
As a landlord, it’s highly likely that at some point during your tenure, you will encounter a situation where one or two tenants struggle with or outright refuse to fulfil their rent obligations, even if you’ve conducted thorough reference checks and credit assessments.
In some instances, it may be a temporary financial setback for the tenant, and they will likely recover and resume their regular payments fairly quickly. On the opposite end of the spectrum, there may be the rare ‘problematic’ tenant who intentionally attempts to occupy your property without paying rent for as long as possible. Fortunately, such cases are uncommon. Lastly, there are tenants who, due to unforeseen circumstances beyond their control, find themselves facing financial difficulties.
However, no matter what caused your tenant to fall into rent arrears, rental income is at the heart of your success as a landlord. You have little choice but to take action in order to keep the dent in your rental profits as small as possible. To help you do just that, we’ve put together this step-by-step guide outlining the best ways to recover what you’re owed.
1. Can you put a repayment plan in place for arrears?
Minor financial blips:
As with any challenge, the sooner you address the problem, the better the outcome is likely to be. Have a candid conversation with your tenant the moment they miss a rent payment to allow you to understand their financial situation. If it’s just a minor hiccup and they’ve momentarily faltered. Perhaps missing a payment or finding themselves unable to afford the full rent. You can likely work out a payment plan to help them pay back their rent arrears over the next few months.
Serious financial struggles:
For more serious financial struggles, where the tenant won’t be able to afford the full rent for the foreseeable future but is genuinely striving to stabilise their income. You might consider temporarily reducing the rent for 6 or even 12 months. Especially if they’ve been a reliable long-term tenant up to this point. Once their financial situation improves, you can agree to an increased payment to allow them to gradually repay their rent arrears over time.
While this approach may mean a temporary reduction in your rental profit, keep in mind that if you have to go through the eviction process, you could face several months without any rent at all. Moreover, if you end up in a dispute with the tenant, and they disappear, your chances of recovering any owed money might be slim.
Our recommendation is to identify the issue as early as possible and work with your tenant to find a solution that suits both parties. Your letting agent can provide advice or handle this process on your behalf. And if you require further assistance, you could reach out to Citizens’ Advice for free mediation services.
In our experience, helping a tenant navigate a rough financial patch and remain in their home often garners their appreciation and respect. Ensuring a continued good tenancy in the future.
2. Retain deposit funds
If your tenant experienced a brief financial setback but has since resumed paying their rent on time and in full, you’re likely inclined to continue the tenancy – assuming that their overall track record is positive. However, if they’re genuinely unable to make up the unpaid rent at the moment, remember that you should have the option to deduct what they owe from their deposit at the end of the tenancy. This way, you can address the outstanding rent while still giving the tenant an opportunity to remain in the property, a win-win.
3. Evict the tenant and pursue them for the rent they owe
If your tenant either can’t afford the full rent or deliberately refuses to pay, you’ll need to evict them as quickly as possible. While recovering rent arrears is important, securing a new tenant who is willing and able to make regular payments should be your immediate focus in this situation.
Via Section 8 notice
In the case of rent arrears, you could issue a Section 8 notice. However, you must wait until the tenant is at least two months behind on rent, assuming rent is paid monthly. If they pay weekly, they should be at least eight weeks in arrears. In either scenario, the minimum notice period you can give them is two weeks. If they refuse to leave, you’ll be forced to go to court to obtain a possession order.
Via Section 21 notice
Alternatively, if the fixed term of the tenancy has ended, you can issue a Section 21 notice instead. Under Section 21, you can provide your tenant with two months’ notice without specifying a reason. If it is apparent early on that the tenant will not be able to pay this could be the best option, allowing you to serve notice immediately.
Under Section 21, if the tenant still refuses to vacate after the two-month notice period, you can pursue an ‘accelerated procedure’ to regain possession without a court hearing. So, if you anticipate that your tenant might be uncooperative, using a section 21 notice could be a quicker and less costly means of regaining possession.
However, under Section 21 you will need to initiate a separate claim to recover any outstanding rent arrears.
Pursuing the tenant once they’ve left your property
Recovering rent arrears once a tenant has been evicted from your property can be tricky. A previous tenant is unlikely to let you know where they’re moving to. Particularly if they’ve been evicted. And you’ll need their current address for the legal paperwork. It is possible to have the paperwork served at their work address, should you know it. However, you’d have to make a separate application to the court in order to do this.
If you do happen to know where the tenant is now living, you can make a formal claim:
- If you’re owed £10,000 or less, you should be able to use the government’s online Money Claims service
- Otherwise, you can make a claim using Form N1, which you can download from the UK website
Sometimes, tenants will pay when served with a formal claim in order to avoid having a county court judgment (CCJ) against them. As that would affect their credit rating. However, even if the court does issue a CCJ against the tenant, they might not have the money to pay you. In this case, once you’ve got the CCJ you’ll need to apply for an ‘attachment of earnings order’, where the money you’re claiming would be deducted directly from their pay.
You might eventually get back what you’re owed. However, it could take a long time because the monthly payments ordered by the court aren’t normally very high.
Is it worth it?
Once the tenant has left your property, recovering rent arrears is likely to take time, effort and money. So you’ll really need to consider whether it’s worth the hassle and cost before moving ahead with a claim.
If you have a current address and are sure that the tenant can afford to pay, then you may have some success. Otherwise, it could end up a long drawn-out process that leaves you worse off financially than you were before. Many landlords find it’s often better to draw a line under the episode, chalk it up to experience and move on. This is why it is imperative to act as soon as a rent payment is missed.
Consider taking out rent guarantee insurance
One way to protect yourself financially against lost rental income is to take out rent guarantee insurance. This covers your rental payments if your tenant falls into arrears. It’s usually offered as an additional policy on top of your standard landlord insurance. The premiums are relatively low-cost and ensure that you’ll continue to receive rent if your tenant runs into difficulty.
Depending on your insurance provider, the terms and level of cover will vary. With all policies, you’ll be covered for at least 12 months up to a maximum total payout – typically around £ 50,000. Most policies will also cover the legal cost of evicting the tenant and regaining possession of the property.
Get In Touch
We’re always happy to recommend insurance providers and chat through the benefits. And if you’d like to discuss how our rent collection and management services could help prevent your tenant from falling into arrears – or if you’re already owed rent and you need some advice, please don’t hesitate to get in touch.