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how to avoid rent arrears

Rent arrears should be at the top of every landlord’s list of ‘things to avoid’. Having a period where your property is unlet and sitting empty is bad enough, but those tend to be for a few weeks at the very most. According to Goodlord, the average annual void for England in 2021, was 17 days – although this does vary quite considerably from one region to another.

What can be hugely more damaging to your finances, not to mention stressful for you personally, is having a tenant who can’t or won’t pay their rent, especially if they stop responding to you and refuse to leave.

Many buy to let landlords rely on their tenant’s rental income to cover their own expenses – such as mortgage payments, insurance premiums and maintenance costs – and also expect to take regular profits from their rental business. For others, especially those who own their property outright, the monthly rent can form an important part of their own income.

The reality is that if you have to go down the eviction route to get a non-paying tenant out of your property, it can easily take 6-9 months to regain possession and sometimes even longer, and that means not only lost rent, but also ever-increasing legal costs.

But here are two pieces of good news:

  1. The number of tenants who do fall into serious arrears is pretty low, and
  2. There is a lot you can do to reduce the chance of that happening to you.

So, how do you avoid rent arrears and keep the monthly rent flowing in?

Do everything you can to ensure your tenant can and will pay

The first step to avoiding rent arrears is to make sure that the person you allow to take up a tenancy in your property is able to pay. You do that by asking for their last 3 months’ bank statements, which will show their regular income and expenditure. You can also contact their employer for a reference, asking for confirmation of their employment status and salary.

Secondly, you’ve got to be as sure as you can that they will pay their rent and there are three things you can do here:

  1. Carry out a credit check, to make sure they don’t have a history of defaulting on credit payments and they don’t have any County Court Judgements (CCJ) against them.
  2. If they’ve rented before, take a reference from their previous landlord. Ask them to confirm (a) the rent amount, (b) that it was always paid on time and in full, and (c) whether they would be happy to let to the tenant again.
  3. If there were any issues with satisfying the proof of income criteria – for instance, the tenant might be a student, have recently become self-employed or only just arrived in the UK – you can ask them to provide a guarantor. That should be someone who lives in the UK and who is willing to take responsibility for making the rent payment if the tenant defaults. Importantly, you must carry out referencing on the guarantor in the same way as for the tenant.

Thirdly, you can help keep the tenant’s bills as low as possible by making the property energy efficient. Bear in mind that although the law only requires a minimum ‘E’ rating on the EPC at the moment, there are government proposals to raise this to ‘C’ by 2025 for new tenants, just a few years away, so it’s worth starting to make any necessary upgrades now.

Something that can really help tenants keep their energy bills under control is a smart meter. It is down to the bill payer to contact the energy provider to request a switch, but you can direct your tenant to the Smart Energy GB website where they can find out the benefit of a smart meter and how they can arrange for a free installation. The more money they can save on bills, the more affordable their rent will be.

Act quickly if there are any issues with the rent payment

If you communicate well and have a good relationship with your tenant, or your agent does, they’re more likely to let you know in advance if they’re not going to be able to pay the rent, which at least gives you a heads-up. However, late payments are often a sign of a longer-term issue, so it’s vital you act quickly.

With financial software such as Landlord Studio, you can generate invoices automatically and send automated rent reminder emails if the tenant falls into rent arrears. You can even link up with Open Banking to make your income (and expense) tracking much easier.

So even if you are super busy – or taking some time out – you will know on the day rent is due if it’s not there, so you can contact the tenant right away. It might be a bank error or just a simple mistake on the part of the tenant, in which case they should be able to sort it out right away. If you work with an agent, the rent should be in your bank account ideally a few days after they have received it.

If it’s just a short-term hiccup, such as a large payment from their employer/client being late, you can probably just come to an agreement about when they will pay you the rent. Make sure whatever you agree is put in writing and, again, act right away if the tenant doesn’t stick to it.

But if it seems like there’s a bigger problem or the tenant starts avoiding your phone calls and ignoring emails once they are in arrears, there isn’t much choice but to start eviction proceedings as soon as possible. It’s a good idea to work with a specialist company like Landlord Action, to make sure the correct legal process is followed and there aren’t any unnecessary delays caused by you inadvertently doing something wrong.

Take out rent guarantee insurance

Once the tenant is in rent arrears, you’re immediately out of pocket and, as I’ve already said, it can take many months to get your property back – during which time, the tenant is living there for free and you’re racking up costs.

So it’s well worth considering taking out insurance to protect your rental income. This is something that you take out in addition to your standard landlord insurance policy, and most providers will cover you for up to 12 months’ rent and offer some assistance with legal bills. Premiums vary, but you should be able to get good cover for between £10 – £20 a month, which is pretty good value for money when you consider the peace of mind it gives you.

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Kate Faulkner

Kate Faulkner is one of the UK’s leading property experts, focusing on consumer education and providing free independent property advice via Propertychecklists. Kate is regularly featured in the press, on the radio and TV, including ITV’s This Morning and BBC Breakfast. Kate also initiated and created The lettings Industry Council and The Homebuying and Selling Group.

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