As a Landlord, how do you avoid rent arrears? Part 1 – a solicitor’s guide.

The Courts are more generous to a tenant over a landlord. It is a reality that landlords face when involved in a landlord and tenant dispute, many of which come in the form of tenant rent arrears.

So how do you, as a landlord, avoid non-paying tenants and at the same time, avoid paying an agent’s fee to do the job?

In short, due diligence. There is a benefit to paying someone else to do your due diligence, but it costs. This guide covers some basic steps that you, as a landlord, can do yourself:

 

  1. Find the right tenants

 

Obvious, but this is easier said than done. There are checks that you can do from the outset which give you some insight into the strangers you are about to enter into a contract with. At the minimum, you should:

  • Complete a credit check; and
  • Collect professional and character references. Most insurers will insist that you conduct a credit check prior to anything being agreed with the tenants in any event.

As a landlord, you are entitled to also request details of your tenant’s income and expenditure. Some tenants can be reluctant to provide this information, but it can be worthwhile to decipher whether the non-payment of rent is a longer-term problem for you as a landlord and the prospective tenant.

 

  1. Guarantors

 

You should always insist in obtaining a guarantor, especially if the potential tenant has a poor credit record. A guarantor is someone who agrees to cover any rent which the tenant may default on. A guarantor must be able to fulfil the following criteria:

  • Be between the age of 18 and 75;
  • Be a UK resident (if not found on the Electoral Roll, they must be able to provide Proof of Residency);
  • The rent guaranteed must be less than 40% of the guarantor’s salary; and
  • They must have a good credit history.

To ensure that the tenant’s nominated guarantor is also aware of the above, it is good practise to have the guarantor provide suitable proof of ID and address, and be asked to sign the tenancy agreement confirming that they understand their obligations.

 

  1. Landlord Insurance Policy

 

You should also check your landlord insurance policy to see whether it covers rent arrears, it is recommended that your insurance policy does so. It could save you the cost of legal fees in the unfortunate scenario a dispute escalates.

 

  1. Protect the Deposit

 

This is a legal requirement and benefits both parties. The consequences of not protecting a tenant’s deposit and not serving the prescribed information when requested to do so, can potentially leave you liable for compensation of up to three times the value of the deposit.

Aside from the consequence outlined above, the non-protection of a deposit can make the recovery of rent arrears very problematic, with tenants/guarantors having the ability to claim a set off to the value of any compensation to which they may be entitled.

On the plus side of deposit protection, you may deduct unpaid rent and repairs for damage (other than normal wear and tear) from the protected deposit.

Managing a single rental property or portfolio of rental properties can be an exciting and profitable investment. Do not take short cuts to save money or time. Taking the above steps and further steps to follow in part 2, will help prevent and make the recovery of rent arrears easier.

Should you be unfortunate enough to pursue the eviction of your tenants, it is important that the situation is handled with care. These situations can often be rectified without the need for court intervention. However, where a dispute escalates, seek legal expertise to ensure you understand all your options and to ensure the effective application of the law.

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  1. […] For tips on: (1) Finding the right tenants; (2) The importance of guarantors; (3) Landlord Insurance Policy; and (4) The importance of protecting the tenants deposit, read Part 1 on how to avoid rent arrears. […]

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