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Tackle rent arrears without delay to mitigate losses

16.09.2011

There are always risks when renting out residential property to tenants.  If you have a mortgage on the property, payment of that remains your responsibility so if your tenant fails to pay the rent, you may have no income but your outgoings will still need to be met.

Here is a practical guide on how you can protect yourself against financial losses if faced with a tenant that falls behind in their payment.

Find out as much as you can about your tenants.  Ask for documents to prove their identity and references as well as details of who will be living at the property and whether they intend to have any pets, even down to whether or not they are smokers.

Make sure that the tenant knows what your expectations are.  For example, is the property designated no smoking, are pets and children allowed, what expenses in addition to the rent are required and when must they be paid?

It is worthwhile requesting details of an emergency contact number for the tenants.  An emergency contact number may help provide you with another route of enquiry if your tenant absconds owing you rent.

Don’t be afraid to carry out a credit check on the proposed tenants.  If they have County Court Judgments for unpaid rent elsewhere you may wish to reconsider them as tenants in your property.  Check to see whether or not they are a credit risk.

If you have asked for references for the proposed tenant then follow them up.

Do this quickly and efficiently.  Find out what the referees know about the tenant and whether they have had any difficulties with them in the past if they are previous landlords.

Consider obtaining a Guarantor.  This is somebody who will guarantee to pay the rent on behalf of the tenant if they are unable to pay it.

Ensure that you have a good written tenancy agreement.  Make sure that the agreement is clear and easy to understand.  Make sure that the tenant understands it and signs the agreement before they move in.

Request from the tenant at least one month’s rent in advance.  Consider also taking a deposit on top of the advance rent payment.

If you decide to accept a cheque then wait for the cheque to clear before you hand over the keys to your property.  It is not unusual to ask for the value of 4-6 weeks rent as the deposit.  This deposit must be paid into a tenancy deposit scheme.  It does allow you, however, to use that money if the tenant either damages the property or leaves without paying the rent.

Consider setting up a direct debit or standing order so that the payments are received regularly and you will have less chance of the payment bouncing as you would with a cheque.

Thorough planning and implementing the correct procedures can help reduce the risk of financial loss in a tenancy arrangement, but occasionally things can go wrong and landlords are owed rent.  Tackling rent arrears without delay can help mitigate potential losses.  Here’s some advice to bear in mind.

Don’t let matters drift.  If a tenant misses a payment, talk to them about it and quickly follow the conversation up with a letter.

If you make an agreement for instalment payments be clear where and when the payments are due, and confirm in writing.  If you are owed more than two months’ rent consider giving Notice seeking Possession.  Take professional advice before serving a Notice as it is easy to draft them incorrectly.  

There are strict time limits for service of such notices and legal proceedings must be issued within a particular timeframe after the notices are served.  If you are unable to resolve the issue with the tenant in correspondence, or by agreement, and you are considering taking steps for possession of your property, it would be sensible to obtain legal advice during the period of negotiation with your tenant rather than leaving things until the last minute.

If the rent is not paid, you can apply to the court to recover back your property and the arrears.

Remember that court proceedings do take time during which you are likely to have a tenant in your property who is not paying any rent. 

To discuss dealing with rent arrears for your property contact Jacqueline Beadle, Associate in the Litigation team at Gullands, [email protected]

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