If you’re a landlord over the long term, the reality is that you’ll probably have a tenant default on their rent at some point. They may simply have forgotten to make payment; it could be a bank error, or they might be in financial difficulty and having trouble making ends meet, or they could be deliberately withholding payment.
Generally speaking, tenants falling into serious arrears, where they’re more than two months behind with their rent, is relatively rare, although there’s no doubt that the pandemic had a negative impact. An NRLA survey of tenants in England and Wales found that by the end of 2020, 7% were in arrears with around 1.2% owing more than £1,000 – that’s more than double the 3% that were in arrears the previous year (ONS). A second survey by the NRLA, this time of member landlords in early 2021 – the majority of whom self-manage - found that 60% had lost some rental income because of the pandemic, with around a quarter saying their losses were increasing.
So, while the vast majority of tenants do pay their rent on time and in full, it’s important to be prepared in case your tenant does stop paying, for whatever reason – especially given the current cost-of-living crisis.
If you use a professional agent to manage your rental, you’re less likely to run into trouble with a non-paying tenant, for three key reasons:
And because referencing is something letting agents do on a very regular basis, they tend to recognise potential issues very quickly. So, while self-managing landlords can also make these checks, they may not pick up the same warning signs.
So, having a good line of communication with a tenant and making regular checks are key when it comes to preventing them falling into arrears. But if payment is late, action needs to be taken right away in order to resolve the issue and keep any losses to a minimum. Our outstanding rent arrears across our managed properties come in at less than 3% whilst the industry average is above 4%.
If your property is being fully managed, we will help with this process and if you have comprehensive landlord insurance, you may be covered for any costs to recoup the rent and evict the tenant – although this should always be a last resort.
a. Once the tenant is more than two months’ in arrears, you can serve a section 8 notice, giving them two weeks to leave.
b. If the tenant doesn’t leave by the required date – and we should point out that in the majority of cases, they do –a possession order may need to be applied for.
c. If the judge is satisfied with the information they have, they will make the possession order, giving the tenant either 14 or 28 days to leave. However, they could decide that a hearing is needed, which may take some time if the courts are busy.
d. If the tenant still refuses to leave by the date given in the possession order, an application to the court for a warrant for possession may be required.
e. If the tenant has not left by the date on the warrant, a bailiff will serve a notice of eviction on the tenant, giving them at least 14 days’ notice and stating the time and date when the eviction will take place.
So what can you do to protect yourself? The first thing is to use an agent to let and manage the property. Not only will this reduce the change of a tenant falling into arrears in the first place, but your agent can handle the rent arrears and if required, the eviction process on your behalf. And, secondly, if you don’t already have rent guarantee insurance, it’s well worth taking out cover so that if your tenant defaults on their rent, you will continue to receive the full monthly payment for up to 12 months and the insurance should also cover the legal costs of evicting the tenant. To discuss this cover, we have a specialist Rent Guarantee service – landlords will still receive their monthly payments, typically up to a maximum amount for an agreed period.
If you have any questions about rent arrears or you currently self-manage and would like to discuss our property management service to take away the hassle of letting a home, just get in touch with your local branch and one of the team will be happy to help.
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