Rent arrears can be a significant issue for landlords and property managers and if not managed effectively, they can lead to financial loss and legal disputes. However, with the right strategies and practices, it is possible to manage rent arrears effectively and minimize their impact.
In this article, we will explore some of the best practices for managing rent arrears and highlight the key recommendations from the Guide on Effective Rent Arrears Management published by the Department for Communities and Local Government.
Prevention is better than being reactive
The best way to manage rent arrears is to prevent them from occurring in the first place. This can be achieved through rigorous tenant screening and credit checks, setting clear payment terms and expectations and providing tenants with easy and convenient payment options. It is also essential to have a clear and detailed tenancy agreement that outlines the consequences of late or missed payments, including the possibility of legal action.
Your business is at risk in case of unforeseen circumstances, if you don't have a strategy to manage rent arrears. The pandemic is a prime example, with an alarming 353,000 private tenants accumulating rent arrears by the end of 2020.
Early intervention
Despite preventive measures, rent arrears can still occur and it is crucial to intervene early to prevent them from escalating. Landlords and property managers should have a system in place for monitoring rent payments and identifying any missed payments as soon as possible. Early intervention can involve contacting the tenant to discuss the reasons for the missed payment and offering support and advice to help them get back on track.
Communication and education
Effective communication is key to managing rent arrears. Landlords and property managers should maintain regular contact with tenants and keep them informed of any arrears or payment issues. Communication should be clear and professional and it is essential to listen to the tenant's concerns and work with them to find a solution.
Also, it's a good idea to be prescriptive as, for example, government departments like the HM Revenue & Customs, who explain the action they're taking as well as the follow-up action that will result if the instructions are ignored.
Flexibility and understanding
In some cases, tenants may experience financial difficulties that make it challenging to pay their rent on time. In these situations, it is essential to be flexible and understanding and work with the tenant to find a solution. This may involve:
- agreeing on a payment plan,
- reducing or deferring the rent, or
- referring the tenant to financial support services.
Legal action
If early intervention and communication fail to resolve the issue, legal action may be necessary. The Guide on Effective Rent Arrears Management recommends that landlords and property managers should seek legal advice before taking any legal action and ensure that they follow the correct procedures. Legal action can include serving a notice seeking possession or pursuing a county court judgment (CCJ) for the unpaid rent.
The Department for Communities and Local Government has published a Guide on Effective Rent Arrears Management that provides detailed recommendations on how to manage rent arrears effectively. Here are some of the key extracts from the guide:
Develop a clear and transparent rent arrears policy that sets out the consequences of late or missed payments and the steps that will be taken to recover the arrears.
Monitor rent payments closely and have a system in place for identifying and addressing arrears promptly.
Communicate with tenants regularly and keep them informed of any arrears or payment issues. Communication should be clear, professional and non-confrontational.
Be flexible and understanding in cases where tenants are experiencing financial difficulties and work with them to find a solution that is mutually beneficial.
Provide tenants with information on financial support services and refer them to these services if necessary.
Seek legal advice before taking any legal action and ensure that you follow the correct procedures.
Keep accurate records of all rent payments, arrears and communication with tenants.
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