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Friday, July 19, 2013

The Landlord’s Guide to Rent Arrears

The issue of rent arrears has always been there for landlords, but against the backdrop of economic recession and austerity cuts, there is much evidence that the problem is now more prevalent than ever.

Only this month, a report by the Resolution Foundation revealed that more and more lower-income families were unable to afford the rents on two-bedroom homes, with large swathes of the country now off limits to many.

The inevitable knock-on effect is an increased number of tenants who cannot meet their rent commitments, and as such it’s imperative that landlords understand the options open to them. Below is a six-point guide:

1. Conduct a thorough vetting process
It may be too late in the day for current tenants, but the problem of rent arrears does help to reinforce the importance of a thorough vetting process before a tenant has even moved in. Leave no stone unturned - seek references, check credit history and employment details, speak to the prospective tenant directly, and even ask for a guarantor. 

2. Start with a gentle reminder
Most tenants don't set out to miss payments, and in many cases the explanation is a perfectly innocent one. Avoid charging in with all guns blazing, and instead make a polite enquiry as to the whereabouts of the missed rent payment. 

3. Put together a repayment plan
The phrase 'financial difficulties' can be viewed as a convenient excuse by some landlords, but as the explosion in pay-day loans has demonstrated, it is also a genuine and growing problem. Try to approach the tenant's problems helpfully - propose a repayment plan that is flexible and manageable, perhaps involving several smaller payments.

4. Send a final demand letter
If a tenant's non-payment persists, it is time to up the ante. Draft a formal letter outlining to the tenant that they are in arrears and that legal action will follow without payment by a certain deadline. If there is a guarantor, contact them. 

5. Take legal action
The final demand letter will often prompt the tenant into action, but if it doesn't have the desired effect, the landlord enters territory where a thorough knowledge of the law is essential. The Housing Act 1988 provides two routes: Section 8, which applies when a landlord wishes to regain possession during the fixed term of a tenancy, and Section 21, which can only be used at the end of an agreement. 

6. Choose a possession procedure
There are two procedures for regaining possession of a property through the courts. For landlords seeking a quick solution without the need for a hearing, the best option is the Accelerated Possession Procedure. There are certain conditions attached to taking this option, and it's not possible to claim for outstanding rent this way. If a landlord does wish to claim for at least two months' rent, apply for "fixed date" proceedings using forms N5 and N119.

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