When rent isn’t paid on time, for many landlords, it’s time to panic and rightly so, more than half of the landlords operating within the UK suffer rent arrears each year, sometimes way into the tens of thousands of pounds; this is particularly the case where landlords own multiple properties and whilst many tenants believe their landlord can afford to miss out on one month’s rent, the reality is, many landlords live hand to mouth and this is likely to become truer as the cost of being a landlord rises but there are ways to reduce costs, maximise return on investment and make sure rent is paid in full and on time!e are 10 of those Landlords’ approaches to making sure the rent does come on time.
Make All Parties Aware of Obligations
It seems obvious to seasoned property professionals like us but for those who may have never rented before and become accustomed to just clicking “I Accept” when they’re faced with lengthy terms and conditions without necessarily reading beyond the first line, it may be less obvious.
The first tenants we ever found since launching Harry Albert Lettings & Estates didn’t read their tenancy agreement, they confessed when their first month’s rent went unpaid on the 1st day of the following month after moving into the property. It transpired that they thought they paid rent in arrears, like mobile phone contracts or utility bills, which is an easy mistake to make but easily avoided had they just read the tenancy agreement. This is why it pays to explain when the rent is due and the basic things expected of them as a tenant, especially if they’ve never rented privately before (social housing always takes rent payments four weeks in arrears)
Unfortunately, this particular tenant is still in arrears nearly 12 months on (though their arrears are less than £40 so it isn’t something we or our landlord client loses any sleep over) as they way they had budgeted their income was to pay the rent at the end of each month, rather than at the start – their arrears have been decreasing as they’ve adapted their budget to cover rent from the first of the month.
Paying on the 1st of each month makes it easier for us to account for any rent payments and it gives us a good idea of whether all rent from all managed properties and properties we provide rent collection services for has been paid on time. It isn’t always possible, mind you. Sometimes, your tenant doesn’t get paid until bang in the middle of the month, and due to their lifestyle or other needs (which would be unreasonable for us to expect them to change), by the 1st of the next month they don’t have enough money to pay rent; in these situations, we find it is in everyone’s interest to allow them to pay their rent on the day they get paid.
We take a pro-rata payment if they move in after the 1st month and we do this by working out the daily rent (dividing the rent by the number of days in the month they’re moving in) and multiplying it by the remaining days of the month after they’ve moved in. This looks like this:
|May: 31 Days||Move in date: Day 14|
|Rent: £800pcm||Daily Rent: (800/31) = £25.80|
|Days left after move-in: (31-14) = 17||Pro-Rata Rent: (25.80*17) = £438.60|
It looks complicated, but it really isn’t. We are happy to do the maths for you, just ask!
The way I see it, so long as the rent is paid, I don’t mind too much if the tenant wants to pay their rent on another day of the month. Personal preference is good but if it’s counter-intuitive and likely to lead to the tenant being unable to pay their rent on time and in full, what’s the point? By allowing them to choose the rent payment date of each month, they have no excuse should it ever arrive late.
We take a zero tolerance policy towards rent arrears and it is imperative landlords do the same as a result of the changes in legislation effectively making rent arrears the cheapest loan on the market; the Tenant Fees Act 2019 means we can only charge 3% above the Bank of England base rate for missed rent payments rather than the £35+ you’ll pay for missed mortgage payments – we’re talking pennies a day.
However, where a tenant is honest and upfront with us, giving us plenty of notice and adequate reasons as to why their rent may be late, we do use our discretion from time to time and advise landlords to do the same, especially if they’re generally a good tenant who rarely has any blips in their payment history. We always say the charges are automatic (which they are) so, by letting us know, we can manually override it to ensure charges aren’t applied whereas, if we aren’t told, we can’t waive charges already applied.
Standing Order is Best, Direct Deposit is Next
There are numerous ways tenants will pay rent, we’ve even seen tenants paying rent regularly by credit card! We absolutely recommend not allowing rent to be paid by credit card due to implications of the Consumer Credit Act 2006 which allows consumers to recover payments above £100 quite easily by claiming they were made fraudulently or they didn’t receive the product or service they paid for, this puts all liability on you, the landlord or your agent to prove they did indeed get the service (of being provided and allowed to remain in accommodation) they paid for; this can be hard to do if the tenant claims the tenancy agreement isn’t real or some other outlandish excuse which would lead to your only form of recourse being through the county court.
The most common ways are through direct deposit, transfer or standing order. Our preferred method is Standing Order but tenants must be aware of whether payments are eligible Faster Payments or not – if not, the standing order must be set up to pay out three working days before the rent falls due, otherwise, it won’t be received on time. Faster Payments, on the other hand, are great, they’re nearly immediate but this is entirely the responsibility of your tenant.
Another preferred way for many agents to receive rent payments is via direct debit, we don’t like using this method ourselves and have since discontinued our direct debit service because tenants can cancel the direct debit without informing us and we’re left to deal with the nasty surprise of rent not being paid, to set the direct debit back up takes several days and we have zero control over whether rent is paid. Even when rent is paid, tenants can recall their direct debit payment which can leave us out of pocket if we’ve already remitted the rent payment to you or leave us wondering what money is missing in our client account if we’ve recorded the rent as received before they recalled the payment – this confusion can last several days until their bank informs us of the cancelled direct debit (but not the recalled payment).
Direct deposit isn’t the most convenient form of payment because the branch could have technical issues, long queues (demotivating tenants to hang around to pay) or the tenant could simply forget – if they’re on holiday abroad, they may not have access to a bank and if they’re in hospital, rent arrears could quickly mount up whilst they have a defence to any Section 8 eviction proceedings decreasing the likelihood of possession being awarded.
Rewards for Paying on Time
Over the last eighteen months, we have found those who are less reliable when it comes to paying their rent on time and in full can be incentivised to do so in other ways, without threats of eviction which could lead to animosity between tenant and landlord, especially if the tenant comes from a more disadvantaged background, such as suffering from homelessness or ex-offenders, or tenants who just can’t budget their money very well.
Of course, there’s a fine line between encouraging bad behaviour through reward. If a tenant loses out on a reward, they may decide to continue with the poor behaviour until the next opportunity for reward comes around. This was seen in college students in receipt of Education Maintenance Allowance, which was a payment to students from the government of £10-£30 per week just for attending all lessons in college, if a student was fifteen minutes late to their first lesson on a Monday morning, they’d be ineligible for a payment that week and the Department for Education found this encouraged students to not attend lessons for the rest of the week – the scheme was soon scrapped.
However, something as simple as telling a tenant in June that you’ll knock £20 off the rent nearer to Christmas if they pay their rent on time and in full, or even just a Christmas card demonstrating your appreciation for them being good tenants can encourage tenants to continue paying their rent on time.
Our letting agency, Harry Albert Lettings & Estates, are developing a new way to reward tenants and landlords based on good behaviour and the overall risk tenants present to landlords in light of the Tenant Fees Act 2019.
The idea is to give agents and, more importantly, landlords a way to completely negate the risks and increased costs resulting from the Tenant Fees Act. It will create an environment where rewards for both tenants and landlords will reflect the level of risk tenants present and will go some way towards reducing the costs agents and landlords are going to have to pay for services provided by external referencing agencies, insurers, etc. – some of those costs, I expect, will be unnecessary should this system prove to be effective. We’ll release more information soon and issue press releases to the Residential Landlords Association (RLA), National Landlords Association (NLA), LandlordToday, The Negotiator, East Midlands Property Owners Association (EMPO), Property118 and the Leicester Mercury.
Keep It Friendly
We’re in business but that doesn’t mean we can’t have some humility when it comes to connecting with our tenants on a personal level. Agents and landlords are the big bad wolves of the sector and this is intimidating for the little red riding hoods known as tenants but by showing our teeth aren’t that large and we’re unlikely to bite their head off if they have a minor problem means they’ll be more comfortable approaching us to inform us of repairs and maintenance and where rent is going to be late. They’ll also be more willing to act as an informant in shared houses or HMOs should other tenants break the rules.
We have two properties under management owned by different landlords that are next door to each other, one of the tenants has a dotted history, to say the least, and is quite vulnerable overall. Their neighbour works closely with us to allow us to act swiftly in a crisis and signpost the vulnerable tenant to relevant services enabling them to maintain a good degree of independence. We were instructed to manage the property with the vulnerable tenant after we were recommended by the landlord of the other property – they could see the value we could provide to the vulnerable tenant as well as the other landlord. By being proactive, we have enabled the vulnerable tenant to continue living in the property where they may have had to go into residential care or similar at the sacrifice of their home.
This is why we always meet our tenants in person at their new home when checking them in, it allows us to really connect with them and they can point out any immediate problems with the house. It also lets us set a date for the first inspection four weeks after moving in and then six monthly thereafter – it also gives us an opportunity to meet any other occupants, pets or family members we weren’t introduced to at the viewing or tenancy signing.
Let A Professional Take Care of It
We have a conflict of interest here. Leicester Property Insight is owned by Midlands Property Group Limited and you’ve probably realised by now that we also own Harry Albert Lettings & Estates in Leicester and other estate and letting agency brands outside of Leicester but we are confident that a professional is in a much better position to manage the property, viewings, tenancy set up and the check-in or check-out process. You may have an emotional attachment to the property or be more humane than us as a company which makes you susceptible to the tenant sob-stories that we hear on a daily basis about why they felt their mobile phone bill was more important than the rent that leads to them being evicted from their last property…
We find tenants are less likely to beg us to be compassionate towards them (whether they deserve compassion or not) because of the stigma associated with letting agents which we can use to our advantage (tenants who are suitable for our properties quickly learn how much we do for them and our tenant reviews on Marks Out of Tenancy speak for themselves).
On top of this, when it comes to repairs and maintenance, we can secure deep discounts on services because of the number of properties we hand over to our contractors when work is required. Harry Albert Lettings & Estates and most of our other brands do not charge any arrangement fees or accept any commission from our contractors off the back of any work carried out for you. This is because we believe our role is to maximise your return on investment and if we’re secretly ripping you off, this isn’t in your best interest and isn’t helping us to achieve our goal of making lettings great again!
Some of our brands do charge extra on top or receive commissions from contractors so make sure you look out for our Fair Fee Guarantee; we only charge these fees within some brands due to contractual obligations and other liabilities but the intention is to bring these brands under the Harry Albert Lettings & Estates brand so customers of these brands also benefit from the same Fair Fee Guarantee.
No Tolerance Policy
Having a zero tolerance policy to bad tenant behaviour is more important than ever given the legislative changes completely removing your safety net as a landlord, especially with current proposals to abolish Section 21 coupled with already rising costs and threats of selective licensing in Leicester.
Online banking means tenants have no excuse to not pay rent on time and we can keep track of rent payments, allowing us to act swiftly when rent isn’t paid on time. We usually send a quick reminder text when we realise rent is unpaid and we usually receive it the same day or we get an explanation as to why it is late.
Where rent is late and no adequate reason provided, or if we haven’t been notified of the late rent payment, or where rent is not paid because “it’s Christmas”, tenants will find a congratulatory letter in the form of a Section 21 or Section 8 depending on the severity and regularity of non-payment.
We also take a zero tolerance policy and recommend you do the same when it comes to anti-social behaviour and other breaches in tenancy. We will work with councils to tackle anti-social behaviour at its source and this allows us to build good relationships with the councils and local authorities – this pays dividends when it comes to asking for help from the council, including planning permission and avoiding hold times by contacting individuals within the council directly.re
Where rent is already outstanding, getting this back might be your biggest priority second only to ensuring rent payments are received in full and on time. When dealing with rent arrears, the only realistic way to recover them is to agree on a payment plan with the tenant and provide a reason for them to actually make payments. Often, allowing them to understand that usually, you would move straight to the next tip (evicting the tenant) but you want to give them a chance but rest assured, you will evict them if the arrears aren’t cleared before a set date.
We take a zero-tolerance approach to rent arrears and tenants get one chance to clear them within a 6-month time limit. We agree set dates as to when payments towards the arrears will be made (usually every payday) and what amount they’ll pay. If they deviate from this, we will be there to bring them back on track but if they fail to clear the arrears within the time limit, we will issue a Section 21 notice and/or Section 8 notice (depending on how long is left of the remaining fixed term) and it will be up to our discretion as to whether to proceed with possession proceedings should they clear the balance after this has been served.
Where tenants frequently fail to pay the rent on time and where they refuse to help themselves by ignoring incentives or adhere to payment plans, the only option is to move on to the next step…
As of 1st June 2019, you will no longer be able to charge “Late Rent” fees above 3% of the Bank of England interest base rate. We would use our discretion when applying Late Rent fees but from the 1st June 2019, the charges for missed or late rent payments will continue until the balance is cleared and we will advise our clients to pursue this balance through the small claims court as we shall be with our own property investments.
When tenants fall behind on the rent, eviction is usually the last tool in your arsenal to fix the problem. In fact, it doesn’t really fix the problem as much as it stops the problem getting worse. For most evictions, they proceedings are commenced using the Section 21 possession procedure where a landlord, in a bid to save time and money after already making hefty losses due to rent arrears, will evict the tenant in what is commonly misnamed a “No Fault” eviction; good tenants are rarely evicted and when they are, there is always a really good, genuine reason. It is that simple. Landlords invest in properties for a return on investment, good tenants create that ROI. Investors would not get rid of their good ROI by getting rid of a good tenant – it’s like shooting yourself in the foot to spite your face. A Section 21 eviction process will mean a landlord has to recover rent arrears later through a small claims court (though they can go through the small claims procedure at any time within 6 years of the rent arrears accruing due to the Statute of Limitation Act – this can also be during the fixed term, it is especially beneficial that this is the case if a landlord has a tenant who has lived in the property for ten or more years and has been good tenants minus a few thousand pounds of rent arrears from a couple of years ago, a landlord may decide to pursue these through the small claims court (or write them off, depending on how valuable the tenant has proven to be over the long term).
So, before you head for eviction, you could try any number of the tips mentioned above but talking to them first should always be the first port of call. There could be any number of reasons why their rent is late, including your bank experiencing technical issues (in January 2019, it was reported that a worker destroyed a brand new Travelodge fit out after a banking error caused several hour delays in his payments being paid which resulted in a delay in the worker’s wages being paid – the worker blamed his employers for the mishap without even consulting with their bank first!); other reasons rent could be late can be a singular event that has impacted their finances (a parking fine that has to be paid within 14 days before it doubles could be a reasonable excuse to not pay the full rent by £x amount if it meant paying the full rent would cause next month’s rent to be short by double the amount of the parking ticket had it been paid in fourteen days – if this became frequent, it would increase in severity), a breakdown in relationships where the sole breadwinner has left the family home (which ultimately, you’ll have no choice but to consider eviction if the other party of the tenancy agreement couldn’t afford the full rent) or an issue with repairs and the tenant withholding rent out of protest.
If it hasn’t been possible to resolve the issue of arrears with tenants, a quick (well, not so quick) three-step process to regaining possession of your property will be suitable:
- Serve notice (Section 21 or Section 8).
- Apply to the court for possession.
- If the tenant doesn’t move out on time, apply for enforcement.
Serving notice is always free and which notice you serve will depend largely on four things:
- Are they within the fixed term? If so, and not within 2 months of the end of the fixed term period, you will not be able to use Section 21.
- Has the tenancy been set up correctly? If not, you might struggle either way, but your Section 21 notice will be deemed invalid if you haven’t complied with basic landlord law (if in doubt, ask us to set up the tenancy agreement for you).
- Is the tenant more than 2 months in arrears? If not, you will not be able to serve a Section 8 notice on the grounds of rent arrears.
- Has the tenancy been protected? If not and you serve a Section 8, a judge may turn around and award the tenant up to 3x the amount of the deposit, less any outstanding arrears (which will be awarded to you should there be any outstanding arrears) which may bring them below the two months threshold of rent arrears making the Section 8 invalid and therefore, you will not be successful in gaining a possession order.
When you decide to evict a tenant, it pays dividends to consult a professional in the industry to maximise your chances of successfully evicting your tenant. Paperwork is king in any eviction process and judges will spend time scrutinising the tenancy and how it was set up to ensure possession proceedings are carried out lawfully and that justice is being appropriately served to those in rent arrears.
Take a tailored approach to tenancy management
Finally, and I can’t stress this enough, you must take a tailored, hands-on approach to managing your tenant and their tenancy and being proactive in the face of rent arrears is key to ensuring arrears are managed properly, reduced and eliminated before they get too far out of hand.
Different tenants will have massively different backgrounds, lifestyles, appetites for risk (in the sense that some tenants may be more willing to risk accruing rent arrears than others) and ultimately, the risk factors associated with any tenant will dictate the likelihood of them falling into rent arrears at some point during the tenancy.
Whether you take a more consultative, supportive approach or a hard line approach will largely depend on your own attitude towards rent arrears, your tenant and how well you get along with them, are they more hassle than they’re worth? Our experience tells us that, whichever way we deal with rent arrears, communication is key and encouraging an open and transparent culture between tenant and landlord is an important element in preventing nasty surprises for either party further down the line.