WHAT DO YOU DO WHEN A TENANT DEFAULTS ON THEIR RENT?

Simran Prasad, Lawyer and Director of Property Management at Benham and Reeves Residential Lettings, discusses the steps that landlords need to take when tenants fall in arrears.

There are many reasons why it’s important to use an ARLA-registered lettings agency to manage your property, not least for the reassurance of having a professional lettings agent on hand to guide you when things go wrong. A full property management service can be a lifeline, providing invaluable expertise and, in the case of Benham and Reeves Lettings, the services of a qualified lawyer, to help you if a crisis hits.

So, with the current economic climate making the prospect of a tenant defaulting on their rent all too real, what should landlords do to make sure they’re covered in this type of situation?

It’s important to remember that large organisations simply won’t allow an employee to take up a tenancy in the first place unless it’s professionally managed by a lettings agent. Secondly, most large companies won’t pay a deposit either, instead they’ll provide a Letter of Guarantee which is just a letter signed by the tenant to say that if there are any dilapidations or arrears at the end of tenancy, they will pay up.

If a deposit has been paid, in the event of the tenant (either an individual or a company) going bust and being unable to pay the rent, the landlord can look at using the deposit to cover rent arrears under the Tenancy Deposit Scheme. But many landlords don’t realise that they can’t rely on this as legally the deposit cannot be used without both the landlord and the tenant’s written consent. A lot of people don’t realise that the law has changed and that, although the deposit is the tenant’s money, they don’t understand that we can’t just hand over monies to the landlord if the tenant doesn’t agree to it.

If a tenant and landlord can’t agree on dilapidations or if a tenant has ‘done a runner’ but there is a deposit in place, we’re obliged to submit the case to an Arbitrator. So while the Tenancy Deposit Scheme has helped speed up some procedures, landlords still need to be aware of what it can and cannot do.

Of course, it’s not just about getting paid, it’s also about gaining repossession of the property. If a tenant falls into arrears, our credit control process involves making a minimum of four phone calls or emails and four letters within a 28 day period. Our fourth letter recommends to the landlord that a solicitor be instructed to serve notice to the tenant for possession of the property and recovery of the rent arrears. At this stage, we would take instructions from the landlord and instruct the solicitor.

Once notice has been served, we would advise the client that a court order should be applied for if the tenant has not vacated the property. Of course, if the tenant is bankrupt and has no money we have little chance of recovering the arrears but the important thing is to obtain possession. At the same time, we would also speak to the tenant to negotiate a payment plan if possible and agree a vacation date, avoiding legal action if possible.

Our Finance Director will always advise a client using his extensive knowledge of the law and past experience to help the client make informed decisions. This is usually successful, but if not, we would always advise the landlord to seek the help of a solicitor who specialises in property possessions.