Landlord Guides - Rent Arrears

Landlords & Rent Arrears

Helpful advice on managing your rental income

1. Introduction

Rentify have produced this guide to help you know what to do if your tenants can't, or won't, pay the rent. We're going to run through all your legal rights and obligations when it comes to recovering rent arrears. And give you some tips on how best to manage what can be a stressful situation. There's nothing that makes the team here at Rentify sadder than a stressed landlord.

We understand your time is valuable. If you’re overwhelmed with managing your property, we can do it all for you through our let my property or full management services or call us today on 033 3014 8505.

Rent arrears are the opposite of what a landlord wants. You have costs, too. Mortgages, broadband, solicitors: none of them pay for themselves. Whether you're renting out property as your main or an additional source of income, or just as a favour to family or friends, you'll rely on regular and punctual payment of rent. Unfortunately, a tenant in rent arrears is one of the most common problems for landlords. The law provides you with some important protections. Ideally, though, it won't come to that.

Recovering rent and, as a last resort, evicting tenants can be a costly process. Chances are, as well, that you don't have a heart of stone. Unless the tenant is a really nasty piece of work, it's never nice to have to remove someone from their home. So it's also important you know what you can do to prevent things from escalating into a situation where legal action is the only option left.

This guide will advise you firstly on how to prevent and manage any rent arrears before providing you with all the information you will need if recourse to the courts becomes necessary. So, let's get started!

2. Preventing rent arrears

What can I do before the tenancy begins?

The first trick is to find the right tenants. Either you or your lettings agents should run credit checks on potential tenants and collect references, so you can satisfy yourself that they're going to be able to afford to pay the rent. You might feel uncomfortable doing it, but it's standard practise. Besides, it's no good for the tenant if they commit themselves to an arrangement they can't afford.

If your landlord insurance policy covers rent arrears (as is advisable), most insurers will
insist that you conducted a credit check prior to the start of the tenancy before they pay up.

If the potential tenant does have a poor credit history, you can ask them to provide
a guarantor, who will be legally liable for their rent payments. A guarantor must be able
to fulfil the following criteria:

  • Be a UK resident (if not found on the Electoral Roll, they must be able to provide Proof of Residency)

  • The rent guaranteed must be less than 40% of their salary

  • They must not have any detrimental credit registered against them

  • Must be able to sign the Agreement of Guarantee a minimum of 24 hours prior to the tenancy commencing as shown on the Tenancy Agreement.

And once the tenancy starts...?

The best thing is to keep clear records and a close eye on the rent, and to talk to your tenants. Tenants are much more likely to deal openly and honestly with you, if you are understanding and fair with them. What you want is a tenant making regular payments, and that's not what you'll get if you get drawn into a protracted dispute.

If the matter does have to go to court later on, you will need clear evidence of the tenant's lack of payment.

Here are some tips for managing rent and limiting arrears during the tenancy:

  1. Try to get the tenant to pay by Standing Order or Direct Debit to cut down on any human error or misunderstanding

  2. Make sure the Standing Order or Direct Debit has a clear payment reference with the tenant's name and address

  3. Keep a close eye on your accounts so you can quickly establish when rent has not been paid, and raise the issue immediately with the tenant. This limits your losses as well as showing the tenant that you take lack of payment very seriously

  4. At the same time, avoid accusing a tenant of anything straight away. There could be many valid reasons for late payment such as a bank error (Monopoly is based on real life after all) or delayed payment of Housing Benefit by the local council.

  5. If you are too accusatory early on, you may spark an unwanted row and damage future relations

  6. If they are experiencing financial difficulty, see if they might be eligible for Housing Benefit (see below)

  7. If they do fall behind with the rent, and you can afford it, see if you can come to some sort of arrangement for repayments.

  8. Remember that you cannot accept the deposit as a rental payment as by law it must be under the protection of a Deposit Protection Scheme until the end of the tenancy

If you are looking to come to an arrangement with a willing tenant who is in arrears, consider the following options. These may be useful, for example, with a tenant who you trust but who has recently lost their job:

  • A realistic times-frame for repayment of the rent

  • A reduced rent but perhaps with increasingly additional amounts to pay of the arrears owed to you over a period of time

  • A lump sum to be paid at a future date to cover the arrears

  • As a last resort you may wish to waive the arrears in exchange for their agreeing
    to vacate the property

No matter how much you trust your tenant, make sure you write any agreement down to prevent misunderstanding

Housing Benefit

In most cases, your tenants won't have fallen behind in the rent through incompetence or because they're trying to pull a fast one on you, but because they can't afford it. In these circumstances, they may be able to apply for Housing Benefit. Housing Benefit is available both to those who are unemployed and those who are employed but earning a low income. It some situations, housing benefit might well be able to help struggling tenants make rent.

Your tenant will be eligible for Housing Benefit if:

  • They are resident in the UK

  • They live in the property for which they are claiming

  • They are responsible for paying the rent or are the partner of the one responsible. Only one member of the couple can receive it

  • They are on a low income

  • They have total capital worth less than £16,000

  • You can take a look at Rentify's ' Landlord's Guide to Housing Benefit ' for more help and advice on how the Housing Benefits system works

    Unfortunately, even with the extra help Housing Benefit provides, tenants could still be unable to make rent.

    If this is the case, your tenant can also apply to the local council for a Discretionary Housing Payment (DHP) . This can be used to:

    1. Make up the shortfall between benefit and rent

    2. Cover existing rent arrears (unless the tenant was receiving enough benefit to pay all of the rent at the time the arrears built up)

    Dealing with rent disputes outside of court

    Legal proceedings are far from ideal. They often take a long time, and although you can apply to reclaim some of your costs with a money judgement, it can be expensive. It's better to think about if you can avoid going to court at all in the first place.

    If both you and your tenant are keen to avoid court and you have failed to come to an agreement about any rent arrears, consider mediation.

    Mediation is where a neutral mediator helps you and your tenant to resolve your dispute and come to an agreement. Mediators you may wish to consider are:

    • Solicitors

    • Property surveyors

    • Professional mediators

    Rentify will be happy to provide you with advice on mediation, suited to your specific situation.

    3. Legally recovering rent arrears

    Unfortunately, you may be forced into legal proceedings, even if you have all the care and patience in the world. It's important to know what your legal options are.

    Unsurprisingly, the law does require tenants to pay the rent. If they persistently don't pay, it allows you to terminate their tenancy. It also provides you with some (limited) means to recover any money owed to you. Exactly what you can do, and when you can do it depends on the terms set out in your written tenancy agreement signed by the tenant before their tenancy begins.

    Firstly, let's look at legal ways to recover rent owed to you.

    Applying to the courts for rent arrears

    If a tenant falls behind with their rent, you'll be able to claim under the terms of your tenancy agreement for money owed to you using the small claims procedure of the County Court (also known as a 'money judgement'). This should be used when you do not wish to
    get possession of the property, just the rent arrears owed to you.

    It is exactly what it sounds like: a court order which forces a debtor to repay any money they owe a creditor. You can apply for a money judgement so long as you can prove that your tenant owes you money. That requires a contract, outlining exactly how much rent is due, and when.

    The contract will typically be your tenancy agreement. This can be either written or verbal, but verbal contracts are much harder to prove. You wouldn't have to be crazy to make a verbal contract, but, well, you'd have to be pretty crazy. You should also have a record of rent payments or a rent book, to prove that a tenant is in arrears.

    Once a money judgement has been issued, the court can enforce its judgement in a number of ways. You can apply for any of these methods of enforcement, and the court will grant whichever it deems most appropriate:

    1. Attachment of earnings

      The court orders the tenant's employers to make a regular deduction from their salary to be paid towards their debt. It will come as no surprise to learn that this only applies when a tenant is employed. Attachments of earnings also do not apply when the tenant is self-employed. It also requires you to know the tenant's employment details.

    2. Warrant of execution

      Aka , 'Distress', Aka : The Nuclear Option. This allows you to use a bailiff to seize and sell sufficient of the tenant's goods to recover the money due under the judgement. There are some pretty serious limits to the sorts of items bailiffs can seize. They can't seize any items necessary for the basic domestic needs of a tenant and their family, e.g. clothes, bedding, and they can't seize any items which the tenant requires for their job or trade. That rules out almost all of the items a tenant might own, unless they're a business, say, or they own a Picasso, in which case, they should probably be able to make rent. There's also a possibility that the Government are going to make any forms of distress illegal, since there's an argument that these powers contravene human rights.

    3. Garnishee

      This weird-sounding order requires anyone who owes your tenant money to pay that money straight to the court. This is particularly useful if your tenant is a business or self-employed.

    4. Charging order

      This is an order preventing the tenant from selling his land or securities (bonds, stocks and shares) without paying what he owes you. It's most useful in the case of a tenant with no earnings or assets apart from property.

    5. Receiver by way of equitable execution

      If the tenant is in receipt of money, for example as a landlord who receives rent on property he owns, the Court can appoint a receiver to collect the money on your behalf. The Court won't appoint a receiver if it doesn't consider that the pretty hefty costs of receivership would be justified given the amount of debt. Don't use a sledgehammer to crack open a pistachio, or whatever the saying is.

    6. Oral examination

      Not going to the dentist, but almost as unpleasant. An oral examination can be used to obtain further information about the tenant's financial circumstances. The court has the power to order the tenant to attend at court so that he can be asked questions, on oath, as to his ability to pay the debt. It can help you decide which enforcement action would be the best according to the tenant's circumstances.

      In order to obtain an oral examination, you should apply directly to the court. The court can provide you with the application form (N316) and a leaflet giving more details on the procedure and suggestions for questions that might be asked.

      You might, for example, ask the tenant to supply information on, the name and address of employer, works number, PAYE number; the tenant's earnings; details of any other earnings (including those of spouse). If the tenant fails to attend or refuses to be examined, he can be committed to prison by the judge for contempt of court.

    This is all quite serious stuff. Often the court ordered enforcement will be unnecessary. If an order remains unpaid for a period of 14 days, the judgement will be recorded on their credit file as CCJ (County Court Judgement). This is pretty toxic for someone's credit rating. The money judgement itself can often be enough to focus your tenant's mind and encourage them either to settle their arrears, or to come to some arrangement with you.

    Remember that you can get cover for rent arrears (usually up to 12 months) under most landlord insurance policies. Please see Rentify's ' Landlord's Guide to Insurance ' for more details.

    4. Rent arrears and obtaining
    possession of your property

    The procedures for ending a tenancy under any circumstances, including rent arrears, are detailed in Rentify's ' Landlord's Guide to Tenancy Agreements '. Likewise, the legal procedures for obtaining possession of the property if the tenant refuses to leave when the agreement has been ended are detailed in Rentify's ' Landlord's Guide to Law '. Please consult these guides for more information.

    If rent arrears become a real problem, you may well decide that you must remove the tenant from the property, and replace them with someone who is able to afford the rent. Not much fun, but it may have to be done. As we mentioned earlier, the exact circumstances in which you'll be able to evict tenants, depends on the details of your tenancy agreement.

    Of course, the threat of a possession order may be enough to force the tenant to buck up their ideas, or keep to a repayment plan. Ultimately, though, the property is yours, and if they persistently don't pay their rent, you're entitled to replace them with tenants who will.

    Accelerated possession procedure

    In most circumstances, Assured Shorthold Tenancies (ASTs) allow landlords to use an accelerated procedure. This basically means that you can evict tenants without any reason, so long as you have given them two months' notice.

    You will require something called a Section 21 notice for the accelerated procedure. Under (you guessed it) Section 21 of the Housing Act , a Section 21 notice allows the landlord to claim possession of their property from the tenant without giving a reason. If you have issued a Section 21 notice to a tenant and they have ignored it (i.e. they haven't moved out by the date specified in the notice), you can initiate the accelerated procedure.

    The Section 21 notice is only available with an AST and you must provide the tenant with at least two months notice before the date on which it is to take effect. Also, the date on which the notice is to take effect must be at least six months after the start date of the tenancy. Even when there is a valid reason like rent arrears, the Section 21 notice is often the path of least resistance for a landlord.

    If you want to use an APP , you must:

    1. Have a written tenancy agreement

    2. Have issued a Section 21 notice. This gives the tenant at least two months to quit
      the property. If the amount of time between rent payments is longer than two months, the notice must be as long as the time between those rent payments.
      So, for example, if they pay rent every three months, they get three months notice

    3. Have let the tenancy run for at least six months

    4. Provide evidence that this notice has been served. The best way to do this it
      to get a solicitor to do it for you

    5. Not include a claim for rent arrears. If you include this with the application for an APP it invalidates the whole application. You can make a separate application for a money judgement.

    Once you've applied for the order, the tenants will be served with papers informing them
    of your application

    Tenants have 14 days to contest to application, by sending in a defence form. They only have two grounds for contesting the claim:

    1. If you're ineligible to apply for the assured procedure

    2. If you haven't served them with a Section 21

    Once the court makes its decision, they will give the tenant between 14 and 42 days to quit the property.

    Standard possession procedure

    If you cannot fulfil the criteria necessary for the accelerated procedure, you will need
    to claim possession using the standard procedure. This procedure will therefore apply
    to the following cases:

    • All assured tenancies

    • ASTs that are to be ended during a fixed term

    With the standard procedure, you must first serve the tenant with a Section 8 notice .
    This gives the tenant notice that you are seeking possession, but unlike the
    Section 21 notice
    it requires you to give grounds for taking possession of the property. Specifically, you must give one or more of the legitimate grounds listed in
    The Housing Act 1988 .

    There are 18 legal grounds for repossession listed in the Housing Act 1988 but as far as rent arrears go, these are the two relevant ones:

    1. Ground 8

      This is for serious rent arrears and the conditions are quite specific. It can be used if at the date the Section 8 is served and at the date of the court hearing:

      • At least 8 weeks' rent is unpaid when rent is due weekly or fortnightly

      • At least 2 months' rent is unpaid when rent is due monthly

      • At least one quarter's rent is more than 3 months in arrears when rent is due quarterly

      • At least 3 months rent is more than 3 months in arrears when rent is due yearly

    2. Ground 11

      This can be used when there are persistent delays in lawfully due rent payment. Make sure you know the circumstances surrounding this before using it to issue a Section 8 notice : e.g. the courts will take it into account if the delayed payments are themselves the result of delays in the tenant receiving housing benefit

    If the tenant hasn't left the property within the period specified in the Section 8 notice , you can apply to the court for a possession order.

    If you seek possession on Ground 8 , then the granting of a possession order is mandatory: If the court is convinced that your tenant is in arrears, then they have to grant the possession order.

    Ground 11, however, is discretionary: If the court thinks your claim is reasonable, they may grant the possession order. Depending on the strength of the evidence, the result of the court hearing will take one of the following forms:

    1. The case is thrown out. The tenant can stay until another opportunity to legally
      repossess the property arrives. The most likely cause for this is that you haven't
      followed the correct procedures

    2. The case is adjourned (if the judge cannot come to a decision)

    3. The judge grants an outright possession order (also known as an absolute order).
      The tenant must leave before the date given in the order (usually 2-4 weeks)

    4. The judge grants a suspended possession order. The tenant can stay in the property as long as they comply with the conditions of the order (this is usually used in cases of rent arrears where the tenant shows a willingness or capability to make up what they owe)

    5. The judge orders the tenant to pay a money order, usually the amount owed to you in rent arrears. This money order can also be tagged on to a possession order to cover your legal costs, for example

    If a tenant refuses to leave by the date given in the possession order, a warrant for eviction must be obtained from the court, using Form N325: Request for Warrant of Possession of Land . Do not attempt to evict the tenant yourself: it is illegal.

    Suspended possession orders are another good way of forcing a tenant to pay back their arrears if you suspect they're able to, and don't want to go through all the trouble of finding new tenants. You may want to suggest it during the hearing.

    The government has an online service with all the relevant forms for reclaiming rent arrears or possession of property. Here it is:

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