Over the course of your time as a landlord, you’re almost certainly going to get one or two tenants who either can’t or won’t pay their rent – no matter how well you referenced and credit-checked them.
Sometimes it’s just a case of your tenant having a financial hiccup and they’ll get back on track fairly quickly. At the other end of the spectrum there’s the ‘bad’ tenant who decides they’re going to stay in your property for free, for as long as possible – but thankfully that’s rare. And then there are people who just hit hard times through no fault of their own.
But no matter what’s caused your tenant to fall into arrears, rental income is at the heart of your success as a landlord, so you’ve got to take action to keep the dent in your rental profits as small as possible.
And to help you do just that, we’ve put together this step-by-step guide on the best ways recover what you’re owed.
1. Can you put a repayment plan in place for arrears?
As with any challenge in lettings, the sooner you can address it, the better the outcome is likely to be. So your first port of call is to speak to your tenant as soon as they miss a rent payment and find out about their financial situation.
If they’ve just had a temporary ‘wobble’ and either missed a payment or not been able to pay you the full amount, you can probably agree a payment plan for them to make up what’s owed over a period of a few months.
If they’ve got a more serious issue and won’t be able to afford the full rent for the foreseeable future, but they’re trying to get their income back on track and they’ve been a good long-term tenant, you could consider reducing the rent for 6 or even 12 months. Once they can afford to pay more, you can agree a ‘boosted payment’ so they make up the shortfall in the future.
Although taking this route will mean you’ll have less rental profit for a while, bear in mind that if you have to evict the tenant, that could mean several months of no rent at all. And if you get into a dispute with the tenant and they disappear, your chances of recovering any money could be slim.
So the first step is to identify the problem at the earliest stage and try to reach a workable solution that’s acceptable to both of you. Your letting agent should be able to either offer advice or handle this on your behalf, but if you need further help, you could contact Citizens’ Advice to find free mediation services. Our experience is that if you help the tenant to stay in their home through a tricky financial patch, they’re likely to be appreciative and be a good tenant into the future.
2. Retain deposit funds
If the tenant just had a temporary financial blip and they’ve now gone back to paying their rent on time and in full, you’ll probably be happy to keep them on – assuming everything else has always been in order. But if they genuinely can’t afford to make up the unpaid rent at the moment, remember that you should be able to retain what they owe from their deposit at the end of the tenancy.
3. Evict the tenant and pursue them for the rent they owe
If the tenant either can’t afford the full rent or they’re wilfully not paying, you need to evict them as quickly as possible. Getting back the rent you’re owed is one thing, but re-letting to someone who’s willing and able to pay you every month going forward should be your priority right now.
Although rent arrears are valid grounds for issuing a section 8 notice, you have to wait until the tenant is at least two months in arrears before you give them notice – assuming rent is paid monthly. If they pay weekly, they must be at least eight weeks in arrears, and the minimum notice you can give them in either case is two weeks. If they refuse to leave, you’ll then have to go to court to get a possession order.
Alternatively, you can issue a section 21 notice at any point after the fixed term of the tenancy has expired, giving your tenant two months’ notice without having to state a reason. So, if it becomes clear pretty quickly that they’re not going to pay you, you can serve notice right away.
If they refuse to leave at the end of those two months, you can apply for an ‘accelerated procedure’ to get your property back, which doesn’t require a court hearing. So, if you think your tenant is likely to dig their heels in, using a section 21 might be a quicker and less expensive way to regain possession. You can then make a separate claim for the rent owed.
4. Pursuing the tenant once they’ve left your property
This can be tricky because when tenants are evicted, they’re unlikely to let you know where they’re moving to, and you need their current address for the legal paperwork. If you know their work address, you could have the paperwork served there, but you’d have to make a separate application to the court 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 at this point because they want to avoid having a county court judgement (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 that case, once you’ve got the CCJ you could apply for an ‘attachment of earnings order’, where the money you’re claiming would be deducted directly from their pay. While you might eventually get what you’re owed, it could take a long time because the monthly payments ordered by the court aren’t normally very high.
All in all, trying to get what you’re owed after the tenant has left your property is likely to take time, effort and money, so really consider whether it’s worth the bother and the cost before you move ahead with a claim. This is why it’s so important to act quickly as soon as a rent payment is missed.
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 simply be a 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.
5. 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 rent payments if your tenant falls into arrears, and it’s usually offered as an extra policy on top of your standard landlord insurance. Paying a relatively small premium each month means that you’ll continue to receive rent, whatever happens to your tenant’s finances.
The terms and level of cover will vary depending on the insurance provider, but you can get a policy that will cover you for at least 12 months, up to a maximum total payout – typically £50,000. Most policies will also cover the legal cost of evicting the tenant and regaining possession of the property.
We’re always happy to recommend an insurance provider and chat through the benefits, so feel free to get in touch at any time. And if you’d like to discuss how our rent collection and management services could help prevent your tenant falling into arrears – or if you’re already owed rent and you just need some advice – call on 01206 332991 or email [email protected] and we’ll get right back to you.
