Are you suffering from rent arrears?
If your tenants aren’t paying their rent that can have a huge impact on your finances, as a landlord. If you are reliant on your rental income to cover your mortgage payments, maintenance costs or if it contributes to your monthly income, non – payment of rent can leave you feeling quite vulnerable. Where some of you may have a large portfolio of properties, rent arrears in one property can quickly erode margins and impact on the profitability and sometimes viability of a portfolio.
Late payment of rent is one of the biggest risks faced by landlords on a daily basis, with 32% having suffered from arrears in the last 12 months, according to the latest research by the National Landlords Association (NLA). The average amount of arrears amounts to over £1600, so if you haven’t allowed for this in your budget, this can leave a gaping hole in your finances.
There are a number of ways you can avoid falling foul of rent arrears. These measurements will allow you to minimise the risk of rent arrears, should you face them, and allow you to ensure that you are prepared. You should look to minimise risk at every stage of the tenancy, starting with the beginning. Always vet your potential tenants, carry out background checks, whether basic or advanced, and confirm that financial checks and references are satisfactory.
Although this is a good way to start, everyone can suffer a change of circumstances, so there are other things you can do throughout the tenancy to help minimise the risk of suffering rental arrears:
Tenant checks can provide helpful background information regarding your tenants and are always a good place to start, but, building and maintaining a good relationship with your tenants throughout the duration of the tenancy means that you will be able to pick up on signs that suggest your tenant may fall into arrears. If the tenant is comfortable with you, they are more likely to approach you and make you aware of any financial difficulties they are experiencing.
The tenancy agreement should outline the details regarding payment, more so when and how you expect to receive your payments.
If you find that rent has not been paid, swiftly make a polite enquiry. By understanding the situation as early as possible, it can be corrected sooner rather than later.
If it appears that the problem is serious, a landlord should arrange to meet or speak with the tenant as soon as practical to discuss their circumstances. It is important to remain calm and professional at all times and keep clear records of all communications.
The reasons for arrears are many and varied and can include issues such as changes in relationships or employment circumstances. Landlords need to recognise the warning signs, then intervene promptly but also sensitively.
Depending on the reason for the late or non-payment, the NLA advises that it may be worth considering negotiating a repayment plan, which brings the arrears back under control. If a landlord has a good relationship with the tenant and both parties are keen for the tenancy to continue, it may be possible to agree a temporary adjustment to the rent and or a way to spread out repayment of any accrued debt. Make sure any new agreement is recorded in writing and signed by you and the tenant(s)
By managing your finances more carefully, and considering the rent for 10 months out of 12, in your budget you are already working to accommodate at least 2 months of arrears, should they occur. This means that should your tenant fall into arrears, the impact on your finances will be minimal as you have already accounted for a 2 month shortfall.
The NLA also recommends advice services such as the Citizens Advice Bureau (www.citizensadvice.org.uk), The Money Advice Service (www.moneyadviceservice.org.uk) and debt advice charity Step Change (www.stepchange.entitledto.co.uk)
Alternatively, your tenant may wish to end the tenancy early. This can be a good option if all parties agree, as it ends liability for rent payments and allows the landlord to move on and find new tenants. It is common practice in circumstances such as these to agree to end the tenancy as soon as replacement tenants have been found to minimise the financial impact to your business.
The NLA offers a landlord and tenant’s guide to rental arrears which can be found at www.landlords.org.uk/rentriskresolve