Rent Arrears: In the ‘normal course of business’ or ‘way too high’?

Carolyn Uphill, NLA Director and Local Representative for Manchester, questions whether any other business would accept their customers failing to pay.

All businesses have bad debts and Buy to Let is, after all, a business. Albeit one the Government doesn’t truly recognises through the tax system. A ‘normal’ allowance for this is in the region of 5% of turnover but rent arrears are running at more than twice that figure.

According to one set of figures recently published 10.7% of all UK rent was either unpaid or late by the end of August. This is an increase from the July figure for unpaid or late rent, which stood at 9%. Another source found that tenant finances took a “turn for the worse” in October with 10.1% of all rent late or unpaid at the end of the month, compared to 8.6% by the end of September (LSL Buy-to-Let Index Oct 2011).

Which ever way you look at it, this is still a huge slice of income to write-off. As rents rise, benefits reduce, and unemployment grows things may only get worse. So is Buy to Let a viable business?

For the answer we need to look back to the business model. All businesses need to factor in the possibility of bad debts but take every possible step to avoid them.

Just as a business takes up trade references you should not let anyone into your property without fully referencing them and establishing that the property is affordable to them within their income bracket.

Never let a debt accumulate. Rent is in arrears the day after it is due; so monitor your payment receipts and contact the tenant as soon as a payment is overdue.

Whilst landlords must never harass a tenant it is always the case, just as in business, that he who ‘shouts loudest’ is more likely to be paid. So be firm but polite, enquire if there is a problem, offer to discuss and/or help with this as appropriate, perhaps they have changed job and have a different pay-day, and try to agree a definite date by which matters will be resolved.

Good communications, built right from the start of the relationship with your tenant, may help to resolve any problem which arises.

Taking the matter to court should always be a last resort. This will take time, indeed the closure of some county courts will make this slow process take even longer, and involve the landlord in extra costs whilst rent remains unpaid.

Statistics also show that an increasing number of tenants are raising a defence, at the last minute, which delays a possession order. Just as a business must get their paperwork right and provide no grounds for a counterclaim when seeking payment on a contract, landlords must make sure that they have met their maintenance and repair obligations towards the tenant.

Rent arrears will continue to be a problem but the wise landlord will take a very businesslike approach to his selection of tenants, and his relationship with them throughout the tenancy, to maximise the possibility of being paid on time and in full for the service he is providing.


2 thoughts on “Rent Arrears: In the ‘normal course of business’ or ‘way too high’?

  1. Landlords shouldn’t be too eager to accept the first tenant that comes along as the economy looks set to get worse in the short term and unemployment is set to rise, the most important thing a landlord can do is take time to ensure prospective tenants are referenced thoroughly.

    If late payments do occur during a tenancy communication is key when dealing with tenants. As mentioned by the author, landlords should take a consultative approach to understand why a payment is late as there may be a perfectly innocent explanation. Landlords should look to work with the tenant to try to eliminate later payments and void periods.

    The use of text messages and incentives are good ways to ensure tenants pay their rent on time.

  2. The above comment may work where the tenant does communicate. What do you do where the tenant does not respond to any forms of communication including messages passed through their friends and acquaintances and claims even to not having received legal notices and indeed the possession order despite being both pushed under the door and on the door itself (this having been remove subsequently). Yet simply knocking on his door resulted in my receiving a letter from his solicitor alleging ‘harassment’. To make things worse the CC (Wandsworth) I am dealing with has a back log which could mean bailiffs not being available for 6-8 weeks. I tried to get the order transferred to the High Court as their bailiffs can act quicker and after asking me to first fill Form N293A, then advising that this was the wrong form, then asking me to fill Form N244, making me wait for almost 3 weeks, I finally get a response from the DJ that I need to fill Form 293A which was what I did originally.

    Further they could not find the N293A forms that I had filled in on the system. I was so appalled at the service standards at this CC that I have had to file a formal complaint which I am told will be responded in ‘due course’.

    In the meantime I continue adding to my losses which now stand at £6,000 but I have to ensure that I pay my mortgages on time otherwise all hell will break loose and I could lose my property.

    What do I do??? I am a law abiding citizen and it seems I am being penalized for that?? Is there any justice in our justice system??

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