How to manage late rental payments
Cash flow is critical for a successful buy-to-let but a worrying trend threatens to disrupt what positivity remains in the landlord sector.
Last year, The Telegraph reported that 1 in 13 private tenants were behind with their rent payments. Fast forward to August 2024 and a new report by Reposit has revealed rent arrears have surged by a staggering 30% year-on-year.
Looking at the detail, the deposit alternative provider found the average claim for rent arrears hit £2,092 in the second quarter of 2024 - a 15% rise from £1,816 in Q1 2024 and a 31% increase from £1,594 in the same period last year.
Surpassing the £2,000 mark is a real worry as it’s a figure that dwarfs the average five-week cash deposit of £1,293. This leaves the distinct possibility that landlords will terminate a tenancy in debt.
When it comes to rent arrears, prevention and prudent management is better than cure, so here are 9 strategies LandlordBuyer suggests for tenancies where the rent isn’t being paid.
- Create a rent arrears repayment plan
If you have allowed rent arrears to build but the tenant has got back on track with monthly payments and you’d like to keep them in your property, an arrears repayment plan could be the best way of recouping lost money. A repayment plan should be set out in a signed document, with the amount of money owed, the amount of money to be paid back every month, for how long and what the consequences would be if the tenant didn’t keep up with repayments clearly detailed. - Check if the tenant receives benefits
It is sometimes possible to use any benefit income the tenant receives to help pay off rent arrears, even if the person is privately renting. The renter can request their benefit provider deduct up to 20% of their benefit payment and have it sent directly to the landlord. It’s a strategy worth considering if your tenant receives either Universal Credit, income support, pension credit, income-based Jobseeker's Allowance or income-related Employment and Support Allowance. - Fall back on the guarantor
If your tenancy was made possible thanks to the presence of a guarantor, rent arrears is a valid reason to get them involved in the tenancy. The terms of the agreement should stipulate that the guarantor has to pay the rent when the tenant can’t. - Consider a rent reduction
If the tenant simply can’t afford the rent but they are well behaved and respectful, you may consider reducing the rent. It’s a serious consideration, however, especially as many landlords’ finances are in a precarious state. You may contemplate reducing the rent for a limited period so the tenant can get back on their feet. Ensure any arrangement is put in writing for the tenant to sign. - Increase the rent
Charging a tenant more every month may sound like a sensible plan to recover arrears but it is a move that should be performed with caution and compliance. Landlords will need to check the type of tenancy they have created and whether there is a rent review clause to establish if they can raise the rent, then use a Section 13 notice (form 4) to ensure the increase is correctly served. Increasing the rent may force the tenant to give notice, if they can’t afford the new payment. You may find this guide for landlords who can’t raise the rent useful. - Permit a rent holiday
In the same way borrowers can ask their mortgage lender for a repayment holiday if they are struggling financially, a tenant can ask a landlord if they can skip payments for a set period – maybe one or two months. Although this is a compassionate strategy, any rent-free period must be confirmed in writing by way of a signed agreement. The landlord must stipulate that all missed rent needs repaying, with a date set by which the money must be repaid and with guidance on what will happen if the missed payments are not repaid. - Recover arrears from the deposit
If the landlord has used one of the Government-approved tenancy deposit schemes and the tenancy has been managed compliantly, in terms of serving the prescribed information, rent arrears is a valid reason for deposit deductions. Sadly, the cap on the amount of deposit that can be taken means it may not cover all of the arrears plus, it’s a strategy that can only be used when the tenancy is terminated or naturally ends. - Serve a Section 8 notice
Ground 8 of a Section 8 notice specifically pertains to rent arrears of at least two months, so if you’re not facing a one-off missed payment, this may be the strategy for you. Sometimes the threat of eviction is enough to make the tenant clear their arrears. It’s worth noting, however, that evictions are not a quick fix, as we detail in this blog on possession troubles. - Sell up with tenants in place
Did you know selling a rental property where the tenants are in arrears is possible? It’s something we specialise in here at LandlordBuyer and we help landlords end their problem tenant nightmares fast. As national homebuyers, we buy any property for cash and will make you an offer for your buy-to-let or rental portfolio, even if your tenants are still living in the property and have missed several rent payments.
Please contact LandlordBuyer and we’ll explain our property buying service for those with tenants in situ. We can offer you a speedy way to stop rent arrears from building further.