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A guest blog by Tara Sparrow, Sales Director of Reapit.
It is quite apparent that rent arrears remain a significant issue for landlords and tenants alike. Putting a figure on the extent of the issue is a variable that is somewhat difficult to place accurately but the problem is likely to persist for quite some time.
An analysis of research for the National Residential Landlords Association (NRLA) earlier this year suggests that up to 840,000 private tenants could have built up arrears since the pandemic started last March. Furthermore, a new report published in May by research group LSE London estimates that over 400,000 private tenants may still be in significant rent arrears by the end of 2021; this is based on the government’s own projection that unemployment will rise to 6.5% this year, impacting on private tenants’ ability to pay their rent.
The instability of tenant finances undoubtedly has a direct impact on landlords and industry body ARLA Propertymark – along with other organisations including the National Residential Landlords Association, Money Trust Advice, and Generation Rent; along with charities Step Change and Shelter – has just recently written to the Minister for Rough Sleeping and Housing, Eddie Hughes, calling for a financial support package to address COVID-related arrears.
This is all very well but any action may come too late in the immediacy for landlords facing difficult circumstances, and whilst the challenges facing some tenants are also significant, it is important that landlords are not neglected. For landlords facing difficulties with rent arrears, here's some advice that letting agents managing properties on behalf of their landlords could follow that may help them manage rent arrears or uncooperative tenants.
Keep a detailed record both of when rent payments are due and when the tenant pays (or fails to do so) will help you to stay on top of any arrears. This can be useful if a property has multiple tenants paying separately, enabling you to quickly see tenants who have not paid – a lettings CRM can make this process much more efficient. Tenants on a joint tenancy agreement should be reminded that they all share equal responsibility for paying the rent and any debt in arrears will be owned collectively.
Contacting the tenant could prompt payment. It may be that their late payments are the result of a genuine mistake or a technical issue. Before proceeding with a formal letter reminding tenants of the terms of their tenancy agreement, a simple call or email may encourage tenants to pay their arrears before further action is taken. You can find a guide including payment plan questionnaire and email templates here to help you with this communication.
If you have not heard from the tenant after attempting to write or call them, the next step would be to contact their guarantor (if one was provided). Stating that that the tenancy agreement terms have been broken and that as guarantor they must meet the full obligations under the Tenancy Agreement on behalf of the tenant, including making up rent arrears.
If the tenant is on Universal Credit or claiming housing benefit they may be eligible for a Discretionary Housing Payment (DHP). The government has made available £140 million in DHP funding for local authorities in England and Wales to distribute to help support vulnerable people with housing costs, and these payments could help tenants in arrears to make payments to their landlord. Tenants are encouraged to apply to their local council.
Hopefully by this point a repayment agreement can be formed with the tenant; however, if this is not the case it may be necessary to reclaim possession of the property using Section 8 of the Housing Act 1988 (Assured and Assured Shorthold Tenancies) to limit the extent of potential arrears if repayment looks unlikely.
If no payment has been made by either a tenant or their guarantor (if applicable), a Section 8 notice can be served informing the tenant that you will take them to court if they do not pay within 14 days from your final written communication.
Under the current COVID-19 regulations, as of 1 June 2021, lettings agents and landlords can serve a Section 8 notice with 4-month notice period if their tenant is in less than 4 months’ arrears. If the tenant has more than 4 months’ arrears, then a 4-week notice period may be served. From 1 August 2021, the minimum notice period for tenants with arrears under 4 months will reduce to 2 months.
Taking a tenant in significant arrears to court is a final option if the landlord wishes to repossess their property or to ask the court to make a money judgement on rent arrears and reasonable costs incurred. This should be a last resort and it is perhaps worth noting that there is little point in suing a tenant who does not have any money to pay. At the end of the day, it might be better for the landlord to write off the debt and move on.
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Oh Goodlord Limited is an Appointed Representative of Goodlord Protect Limited for general insurance products and credit broking. Goodlord Protect Limited is directly authorised by the Financial Conduct Authority, registration number 836727. You can check this information on the Financial Services Register by visiting www.fca.org.uk/register or by telephoning 0800 111 6768 (Freephone) or 0300 500 8082 from the UK. The FCA is the independent watchdog that regulates financial services.