GL#7: How to manage rent arrears


In this week’s episode of Good Landlording, we discuss one of the most difficult aspects of our jobs as landlords, and that’s handling rent arrears. Rent arrears are challenging, even if landlords use an agent.

The essence of the agreement between a landlord and a tenant is that the landlord provides a well maintained and legally compliant property to live in. In return, the tenant pays rent. If tenants don’t pay the rent when it’s due, they are in what’s called rent arrears.

Private landlords run a business and need to be paid the same as any other business that doesn’t receive government funding. Being a good landlord doesn’t mean you’re a charity and you need to provide the property free of charge. If we don’t get paid, we can’t pay our bills, and may end up going out of business. However, there’s a lot landlords can do to help tenants who start to fall into rent arrears.

Managing rent arrears is something that all landlords need to understand, so we can minimise the risk of rent arrears, and know what to do if our tenants fall behind with their rent.

Richard Jackson and Suzanne Smith share practical tips to help landlords avoid rent arrears, what landlords should do if tenants do fall behind with their rent, and how to help tenants. We also go through options are for evicting tenants in rent arrears both now and if the Renters Reform Bill had come into force. Eviction should be the last resort for landlords, if everything else has failed.

>> Submit a question: Click here for question form

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Practical tips for landlords to minimise the risk of rent arrears

Prevention is better than cure, and landlords should try to avoid tenants falling into arrears in the first place. Here are 7 practical tips to minimise the risk of rent arrears:

  1. Tenant selection. Choose tenants that can comfortably afford the rent. For more information, see Episode 1: What makes a good tenant?
  2. Choose the rent payment date carefully. When entering into a new tenancy agreement, ask the tenants when they would like to pay the rent. The best date is shortly after they are paid. You can pro-rate the first payment so that if they move in on the 15th of the month, but want to pay on the 25th of the month, they pay the extra amount in their first rent payment. After that, they’ll go onto the new rent payment date. OpenRent have a facility to calculate and set this up automatically for you as part of their RentNow package.
  3. Standing order. Ask tenants to set up a standing order so they don’t forget to pay the rent. You can tell if they have done this as the rent payment will come in overnight, rather than in the daytime.
  4. Track rent payments. It’s important to keep track of whether tenants have paid the rent. You can check your own bank account on the payment days, or automate it with (say) Alphaletz. The Alphaletz platform can send the tenant a reminder that the rent is due, and send a chaser if the tenant doesn’t pay the rent on the due date.
  5. Rent guarantee insurance. Richard recommends taking out rent guarantee insurance for the first year with new tenants. If they are good payers and are never late paying, you can cancel it in the second year.
  6. Clarity with letting agents. Make sure it is clear what your letting agents are required to do for late or missed payments, ie who’s responsible for chasing it up and then actioning it. Also, ask the agents to tell you if payments are (say) more 5 days late.
  7. Don’t hope it will get better by itself. Don’t be afraid to contact the tenants if they are late with their payments. It is far better to be upfront about it, and have an early conversation the tenants. Chances are that if you don’t intervene, it won’t get better by itself.

What should landlords do if tenants are in rent arrears?

Practical tips to help tenants

  • Talk to your tenants. If a tenant misses a rent payment, the first step is for you (or the agent) should speak to them and discuss why they were late paying. It may be that they have changed jobs and now get paid on a different day, in which case you could agree to change the date. Or they might have lost their job, or run into financial difficulties.
  • Payment plan. A good option is to agree a payment plan with your tenant so that they can catch up with the missed rent.
  • See if they are entitled to benefits. The Entitled To website is an excellent starting point as it has a free benefits calculator which can work out what benefits the tenants may be able to claim. Sometimes tenants might not realise that they’re entitled to Universal Credit, for instance. Other good sources of factual information for tenants in rent arrears are the Shelter and Citizen’s Advice websites. The local council may also be able to help – they will want to avoid an eviction and homelessness. A good example of this is Ashford Borough Council in Kent.

What is Breathing Space?

Breathing Space, or the Debt Respite Scheme to use its official name, is a government scheme that provides people in debt with time to receive debt advice and try to find a way forward.

If a debt advisor tells a landlord that a tenant has entered into a Breathing Space, the landlord cannot take action to collect or enforce their rent arrears until the Breathing Space period ends. The standard Breathing Space period is 60 days and a mental health crisis Breathing Space lasts as long as their treatment for their crisis, plus 30 days.

>> Useful Resource: National Debtline – Breathing Space

Late payment process

When when it comes to managing rent arrears, process really is our friend, and it’s important for landlords to follow a late payment process. It can be an automated process (like Alphaletz) or a manual process.

If you don’t want to automate it or use a platform, there are excellent templates on the NRLA website. You can also find templates of texts and escalation letters on The Independent Landlord.

Landlords can charge a late fee after 14 days, so long as it is in the tenancy agreement, but the fee must not be more than 3% above the base rate. After 14 days, it is possible for the landlord can backdate the interest payment to the day the rent fell due until the tenant clears the outstanding amount in full.

It is not possible to increase the late fee above 3% above the base rate as it would be a prohibited payment under the Tenant Fees Act 2019.

>> Useful Resource: The Independent Landlord – How to deal with rent arrears effectively.

The last resort: Evicting tenants because of rent arrears

Eviction of tenants who are in rent arrears should be a last resort when the above steps have failed.

Landlords should use a firm that is regulated by the Solicitors Regulation Authority (SRA) so that they have redress if the service is poor, and have appropriate professional indemnity insurance. You can check if an organisation is regulated by the SRA by looking it up on the SRA Register. Don’t be tempted to take legal advice from “eviction specialists” who are not regulated by the SRA.

Using Section 21 Housing Act 1988

Section 21 is called no fault eviction, which is a bit of a a misnomer becayse it doesn’t mean the tenant is not at fault. It’s just that the landlord does not have to give a reason, and doesn’t need to prove they have a specific ground to evict.

Section 21 is due to be abolished by the Renters Reform Bill in two waves – one for “new tenancies” created after the Renters Reform Act comes into force (including fixed term tenancies which expire after that date, and a later one for “existing tenancies”, which means unexpired fixed term tenancies and tenancies which were already periodic when the Act came into force. See podcast episode: RRB#2 Why the Renters Reform Bill might start in May 2025.

In order to serve a Section 21 notice, landlords (or their agents) need to use Form 6A to serve a Section 21 notice, which is available on the gov.uk website. Always check on the government website for the latest form as the form does change from time to time.

They can’t serve it until at least four months after the tenancy began, and the landlord needs to give at least two months notice. It also can’t be served so as to expire before the last day of a fixed term tenancy, unless there is a break clause. There are other requirements, which are set out in the Useful Resource below:

>> Useful Resource: The Independent Landlord – How to serve a valid Section 21 notice

>> Useful Resource: The Independent Landlord – Landlord guide to the abolition of Section 21

Using Section 8 Housing Act 1988

A landlord can apply to evict tenants if they fall under one of grounds listed in Schedule 2 of the Housing Act 1988, using Form 3. Again, it’s important to use an up to date version of the official form from the GOV.uk website.

Unlike Section 21, a landlord can serve a Section 8 notice at any time, even during a fixed term. Unless the tenants move out of their own volition, the landlord will need to go to court and prove to the judge that they have one or more of the grounds to evict the tenants.

Currently, there are two grounds for possession under Section 8 that landlords can use if the tenants are in rent arrears:

  • Mandatory Ground 8 – serious rent arrears
    • The rent needs to be at least two months in arrears and, both on the day that the landlord serves the notice and on the day of the hearing. Sometimes the tenants will pay it to underneath the two months amount on the day of the hearing, and then the landlord won’t get possession.
    • As it is a mandatory ground, if you can prove that the tenant owed more than 2 months’ rent when you served the notice and on the day of the hearing, the judge has no choice but to grant an order for possession.
  • Discretionary Ground 10 – “some rent” is unpaid
    • Any amount of rent needs to be unpaid at the date the notice was served and on the day of the court hearing. There is no minimum amount.
    • As this ground is discretionary, it is for the judge to decide whether or not it is reasonable to make an order for possession in the circumstances.

The new Mandatory Ground 8A in the Renters Reform Bill

Since recording this podcast, the Renters Reform Bill has now been abandoned.

We explained how the Renters Reform Bill introduced a new Mandatory Ground for Possession (which will now not become law under the Renters Reform Bill):

  • New Mandatory Ground 8A
    • A landlord will be able to obtain an order for possession if they can prove that rent amounting to at least two months’ rent was unpaid for at least a day on at least three separate occasions in a three year period ending with the date of service of the Section 8 notice.
  • This new ground has been very unpopular with the tenant organisations and the Labour Party tabled an unsuccessful amendment to this ground to change it to a discretionary ground.

Golden nugget

Good communication with tenants is key to building a good relationship with tenants. Landlords should try to see things from their tenants’ perspective when looking to work things out. It’s easier to come to a satisfactory way forward if the landlord already has a good relationship with the tenant.

There’s a lot of help available for tenants in rent arrears, and landlords can make a difference by making sure the tenants know what help is there for them.

Credits

Music: Kevin MacLeod of Incompetech. Licensed under Creative Commons.

How to manage rent arrears

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