How to Manage Rent Arrears Effectively | Decorus for Sage

How to manage rent arrears effectively

Rent arrears, while undoubtedly stressful, can be managed effectively with a calm and methodical approach. Missed payments, if not addressed promptly, can escalate into overwhelming amounts. However, having a clear process and plan in place can help navigate these situations, preventing them from becoming heated and sour. Keeping a level head can make it possible to reach an agreement that satisfies both parties. Furthermore, approaching the situation correctly can minimise losses, even when the situation looks precarious.

What is Rent Arrear?

Rent arrears is a legal term for any money owed after the due date.

How long after the due date is rent considered in arrears?

Any money owed after the due date is considered a rent arrear. Even if a tenant makes a partial payment, the remaining sum is still considered a rent arrear. Late payments can be grounds for legal action and eviction (section 8: grounds 8, 10 & 11). As soon as a payment becomes late, starting a process for arrears is essential.

We have compiled this guide to be an expert aid should you ever ask

‘What should I do if my tenant falls into rent arrears?’

Summary
  1. As soon as a payment is late, communicate with the tenant and let them know they have missed a payment.
  2. If the first response is unsatisfactory, send a formal reminder with consequences if the payment is not made.
  3. Contact your insurer and check what you are covered for
  4. Offer a repayment plan
  5. Contact the tenant’s guarantor
  6. Serve a section 8 or section 12 notice
  7. Serving an eviction notice
  8. Begin a possession order proceeding if the tenant hasn’t responded to the notice
  9. Debt Recovery
Prerequisite: Ensure you record all communications and track payments with the involved parties.
This can be vital part of the process that shouldn’t be overlooked. Collect evidence that can work in your favour if you end up in court. Hopefully, court can be avoided, but it is always best to be prepared. The very fact that you show you are organised and prepared is a deterrent. Considering the idea of being prepared for court along with the idea they could be too. This is why it is important to approach the situation courteously and sensitively. Any unreasonable actions or behaviour can work against you if the situation starts to escalate. This guide is intended to provide an overview of the rent arrears process and is not a substitute for legal advice. We advise seeking professional advice.

What should I do if my tenant doesn’t pay rent on time?

1: Communicate with your tenant first

The first step to take when a tenants miss a payment is to inform the tenant has missed a payment. There are lots of genuine reasons why a tenant may have missed a payment, and opening a line of communication with them will help you find out why. Maybe payroll at their work was late, they’ve changed bank providers and the standing order didn’t transfer, or they just lost track of the date. A polite call, text or email will be sufficient to inform them and allow them to inform you of their situation.

2a: Begin more formal communication actions

If the tenant hasn’t paid or responded to your communications, then send them a first-class letter or hand-deliver one.

The letter should inform them you have already attempted to contact them regarding a payment request for outstanding arrears and payment should be made as soon as possible.

If you have been able to open a line of communication and the tenant looks to be in a precarious financial position, it is reasonable to direct them to places and organisations where they can get help, advice and funding.

Advice centres
.gov

Debt Advice

Cost of Living

Civil Legal Advice

Benefits Calculator

Citizens Advice

Website

Helpline

0800 144 8848e

2b: Contacting the guarantor

If the tenant has a guarantor and you have been unable to contact the tenant or agree on a repayment plan, it may be worth contacting the guarantor. Inform the guarantor that the tenant is behind on arrears, and without a solution, further actions will be taken against the tenant.

We have created a free pack of templates you can use to communicate to your tenants with

3: Contacting your insurer

At this point, it may be worth contacting your insurance provider and checking if you are covered, how to claim and how much you are eligible for.

As a landlord, you should be able to demonstrate how you have exhausted all your options before serving notice.

What options does a landlord have before serving notice for rent arrears?

4. Offering a payment plan (optional)

Offering a repayment plan is not a necessity nor obligatory; however, it is a gesture of goodwill and can be enough to get your tenant back on track. If you are open to a repayment, make sure it works for both you and the tenant. Get the tenant to agree to the new terms and have them sign the agreement. Keep the document safe and make copies for backup.

There are multiple ways you can set up a repayment plan for tenants in arrears:

When can a landlord serve notice?

5a: Section 8 Notice

You can serve a Section 8 notice at any point during the tenancy as it is based on breaches of the tenancy agreement. The classification can be either mandatory or discretionary and depends on the notice’s grounds. For rent arrears to be mandatory, the payment needs to be late by:

  • 8 weeks if paid weekly
  • 2 months if paid monthly
  • 3 months if paid quarterly or annually

There are also another 2 grounds which are arrears related (both are discretionary):

  • Ground 10 – The tenant has some form of arrears
  • Ground 11 – The tenant is repeatably late with payments

5b: Section 21 Notice

You can serve a Section 21 at the end of a tenancy if you have a written contract. You can also use section 21 if there is no fixed end date and use a periodic tenancy. Section 21 notices are only valid on assured shorthold tenancies.

You don’t need to give a reason why other than you don’t want to renew a tenancy agreement. A Section 21 is often referred to as a ‘No Fault’ evection because you don’t have to provide a reason.

There are still some limitations on when you can serve a Section 21 notice:

There are quite a few scenarios that can invalidate a Section 21 notice.

6: Giving eviction notice

The notice period you need to give depends on the grounds for eviction. For Section 8 grounds 8, 10, and 11, you need to give a notice of 2 weeks.

For a Section 21 you need to give notice of at least 2 months. This notice period becomes longer if you have contractual obligations such as a periodic tenancy. For example, if you had a fixed-term notice that ended and ran into a periodic tenancy, and the tenant pays every 3 months, you must give 3 months notice. If you don’t give enough notice, it will invalidate it. As with all the steps in this post, you need to record your actions for proof.

Tensions will have risen at this moment, and it is important to remain level-headed. We mentioned earlier how unreasonable actions will hinder progress. Actions such as changing locks, removing tenants’ belongings from the property, and turning off utilities could even result in legal action against the landlord.

7: Serving an eviction notice

To serve a section 8 notice, you need to have completed an up-to-date Tenancy form 3: notice seeking possession of a property let on an assured tenancy or an assured agricultural occupancy.

To serve section 21 notice you need to complete a Tenancy form 6A: Notice seeking possession of a property let on an assured shorthold tenancy.

After providing notice, you need to provide proof. The government provides a specific certificate for this with a N215 form.

This, hopefully, is the final step. But this is also a reminder for some of the previous actions because at this point, you should have:

A: Tried to resolve the issue with the tenant as serving notice should be the last resort.

B: Gave regular reminders and informed the tenants along the process and why the notice is being given.

You serve the notice by:

  • Handing the tenant the notice
  • Putting the notice through the letterbox
  • Delivering a notice by post (Recorded being the optimal option for this but not mandatory)
The notice should have a data of when you expect the tenant to vacate the property and should be a minimum of 2 weeks.

Can the tenant appeal a notice?

Yes. We have identified some of the potential pitfalls along the process that may validate or enable a tenant’s appeal. The notice can also be prolonged and challenged if the details are incorrect such as misspelt name or wrong address.

What happens if the tenant refuses to leave after a notice has been served?

8: Begin a possession order proceeding

If a tenant doesn’t leave by the requested date on the notice, then the landlord can begin a ‘possession claim’ and request the court to order the tenant to leave.

If the court rules that the tenant must leave, they will have a minimum of 14 days to do so. If the tenant doesn’t leave on their own after the court notice, the court will send bailiffs to the property.

Can a tenant appeal a ‘possession order’?

Yes. If the tenant’s circumstances change, such as they regain work and benefits start coming through or they pay a proportion of the arrears off. If the court accepts the tenant’s appeal, then the possession order can be suspended or postponed.

9. Rent Recovery and Making a Claim

Once the tenant has vacated the property, the arrears become fixed, meaning no further debt will accumulate. At this stage, your focus shifts to recovering the outstanding amount. There are a few options available for pursuing unpaid rent:

  • Debt Recovery Services: Specialised businesses can assist with recovering unpaid rent. These companies are experienced in dealing with delinquent payments and can help you recover the money more efficiently. However, these services typically charge a fee, which may reduce the overall amount you recover. Assessing whether the potential recovery justifies the additional costs and time involved is important.
  • Small Claims Court: For amounts under £10,000, you might consider taking the tenant to small claims court. This straightforward process can be a cost-effective way to recover smaller sums. You can begin your small claims case through the UK government’s official portal here. When preparing for a small claims case, ensure that you have all necessary documentation, such as proof of the debt, communication records, and any agreements made with the tenant.

Considerations: Before deciding on a recovery method, weigh the costs and potential outcomes. Debt recovery services may be more suitable for larger amounts, while small claims court is ideal for smaller sums. Also, consider the likelihood of the tenant being able to pay the debt; if their financial situation is dire, the recovery process might be more challenging, drawn out and even end without recouping the debt.

As you can see from this guide the process of managing rent arrears can be very lengthy, particularly if there are any changes in the process. Because of this it is better to start the ball rolling sooner rather than later as you have more chance to resolve the issue. If it all looks to be going south, at least you are in a position where you can reduce the time and stress of the process.

How can Decorus help with managing rent arrears?

Decorus has specific features within the Credit Control Module to help deal with rent arrears.

Automate Reminders: Decorus can automate the sending of reminders for outstanding rent. Users can customise and set their own rules and schedules when tenants receive reminders.

Record keeping: Decorus provides an ideal safe place to keep, store, and upload any records or documents associated with a tenant sent during the process.

Templates: Decorus also provides a set of templates for users to utilise. Users can also customise or upload their own templates.

Disclaimer: The information provided on this website is intended for informational and general guidance purposes only. The information does not constitute legal advice, and users should not rely on them as a substitute for professional legal counsel.

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