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One of the biggest concerns for many landlords is rent arrears. Some tenants have fallen outside of various Governments schemes to support those who cannot earn at the moment and many landlords are working with them to avoid eviction and to agree payments which those tenants can afford.
There are, however, some tenants who, for whatever reason, do not pay their rent and often go on “radio silence” ignoring text, calls and emails from landlords who are trying to find a way to work with them. I am reading Facebook posts where landlords have lost thousands of pounds and are now facing losing, not only their rental property also their own homes. These landlords cannot evict the tenant and they have limited ways of recovering the rent which is owed. Unfortunately this situation is about to get worse for some landlords and it’s important to understand what is happening:
4th May 2021 new regulations commence in England and Wales:
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 And also this same legislation in draft form.
“These Regulations apply in respect of debtors domiciled or ordinarily resident in England or Wales.”
This legislation will enable those who qualify to take “a breathing space” to help them to recover from their debt problems without being under pressure. This is called A Debt Respite Period and there are two options:
“A standard breathing space is available to anyone with problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts.
A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).”
Tenants can get these breathing spaces if they are working with:
“a debt advice provider who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling.
a local authority (where they provide debt advice to residents).”
The person giving a tenant this respite must ensure that the tenant will be able to meet their obligations at the end of the period, they cannot give this respite if it will make the tenant/person’s debts worse. The person must have a “qualifying debt” – rent is a qualifying debt, you can see the full list here.
During this period the tenant must continue to pay the rent and if they do not we can apply to have the Debt Respite Period cancelled.
What does this mean for landlords who have tenants who go into a Debt Respite Period?
Standard Breathing Space
- Debts cannot be chased once a person is in the Debt Respite Period. That means no reminders, text calls or emails.
- This also applies where there are joint tenants.
- A Section 8 cannot therefore be issued on grounds 8,10 or 11 at that time (rent arrears) but it can be issued on other grounds.
- A Section 21 (no fault) Notice can still be issued.
Mental health crisis Breathing Space
- Debts cannot be chased once a person is in the Debt Respite Period. That means no reminders, text calls or emails.
- This also applies where there are joint tenants.
- Debts cannot be chased until 30 days after the period has ended if there was a mental health issue. Exactly how we find out when an issue has officially ended is not clear.
- A Section 8 cannot therefore be issued on grounds 8,10 or 11 at that time (rent arrears) but it can be issued on other grounds.
- A Section 21 (no fault) Notice can still be issued.
Some general rules taken from the regulations, for either type of breathing space:
“a creditor is prevented from taking are any steps to—
(a)require a debtor to pay interest that accrues on a moratorium debt during a moratorium period,
(b)require a debtor to pay fees, penalties or charges in relation to a moratorium debt that accrue during a moratorium period,
(c)take any enforcement action in respect of a moratorium debt (whether the right to take such action arises under a contract, by virtue of an enactment or otherwise), or
(d)instruct an agent to take any of the actions mentioned in sub-paragraphs (a) to (c).
(7) A creditor or agent takes enforcement action if they take any of the following steps in relation to a moratorium debt—
(a)take a step to collect a moratorium debt from a debtor,
(b)take a step to enforce a judgment or order issued by a court or tribunal before or during a moratorium period regarding a moratorium debt,
(c)enforce security held in respect of a moratorium debt,
(d)obtain a warrant,
(e)subject to regulation 12(4)(d), sell or take control of a debtor’s property or goods,
(f)start any action or legal proceedings against a debtor relating to or as a consequence of non-payment of a moratorium debt,
(g)make an application for a default judgment in respect of a claim for money against the debtor,
(j)serve a notice to take possession of a dwelling-house let to a debtor on grounds 8, 10 or 11 in Schedule 2 to the Housing Act 1988 or take possession of a dwelling-house let to a debtor having served such a notice,
(k)serve a notice to take possession of a dwelling let to a debtor or take possession of a dwelling let to a debtor having served such a notice—
(i)on the ground of breach of contract specified in section 157 of the Renting Homes (Wales) Act 2016 where that breach relates to rent arrears, or
(ii)on the grounds specified in section 181(2) of the Renting Homes (Wales) Act 2016, or
(iii)on the grounds specified in section 187(2) of the Renting Homes (Wales) Act 2016),
(l)contact a debtor for the purpose of enforcement of a moratorium debt,
(n)take any of the steps in this paragraph in relation to a joint debtor.”
Once we have been informed that a Respite period is in place we have up to 20 days in which to ask for a review, we need grounds as follows:
“(a)the moratorium unfairly prejudices the interests of the creditor, or
(b)there has been some material irregularity in relation to any of the matters specified in paragraph (2).
(2) The matters in relation to which a creditor may request a review on the ground of material irregularity are that—
(a)the debtor did not meet the relevant eligibility criteria when the application for the moratorium was made,
(b)a moratorium debt is not a qualifying debt, or
(c)the debtor has sufficient funds to discharge or liquidate their debt as it falls due.”
There may well be many tenants who cannot pay their rent at the moment but will be able to pay once the pandemic has passed and they may ask for a Breathing Space, if they cannot afford to pay now anyway their landlords are not losing anything and at least they know what is going on rather than being ignored. Those tenants have an obligation, under this legislation, to inform the person administering their respite period if their “circumstance or financial position changes”. They also cannot take on more debt while in this moratorium nor fail to pay their rent when it falls due.
Many people are suffering from mental health issues at the moment, some are able to handle them and may only need some mild medication or counselling but for some the isolation, confinement, lack of mental challenges/social activities/conversation/physical contact has had a bigger affect and they need much more help. These are the people who may legitimately need the respite from pressure of bills to pay. The worry for us, as landlords, is that this could be ongoing, or at least until the pandemic is over, and the moratorium on chasing our rent will be in place for 30 days after any treatment or support has ended. There is nothing we can do about the rent which these tenants owe but they are obligated to pay the rent which falls due once the Breathing Space moratorium begins but if they fail to pay during that time we can ask the Debt Advisor to “review” the debt. We must do this in writing to the Debt Advisor who informed us of the moratorium. Non payment of rent during that period gives us grounds under:
“there has been some material irregularity in relation to any of the matters specified in regulation 17(2)”
The Debt Advisor has 35 days in which to reply to this request. The process, which is fully explained in the legislation, is complicated and we should not expect to get a quick result. We need to remember that this legislation was written to protect people who have lost control of their finances and it is intended to help them to take a step back for a while and then recover from the situation. It was not written for delinquent tenants who have run up thousands of pounds in rent arrears despite the fact that their financial situation didn’t change during the pandemic. Please don’t see this as an “anti-landlord” move by Government because if we keep on positioning ourselves as victims many landlords will not recover and that would be a pity for them and for the tenants who need us to offer them nice homes.
“The best way to avoid having to deal with a bad tenant is not to take one in the first place”
These are the words of a portfolio landlord of many years and the more you repeat those words the more sense they make BUT how do we avoid taking a bad tenant?
I have let to hundreds of tenants since 1972 and you might expect that I get requests for references all the time but you would be wrong. I can count on one hand the number of requests I have had in all those years and those requests came from Agents or Referencing companies not landlords. Shocking! A company wouldn’t take a new employee without taking a reference from a past employer, why would we take such a risk? I honestly do not understand. Here is my advice:
- Always check with the landlord before the current one, this landlord has nothing to gain or lose, ask 3 questions only:
- Did this tenant live in your property on these dates?
- Did this tenant pay the rent on time and in full?
- Would you take this tenant again?
That is all we need to know and it avoids a landlord feeling uncomfortable discussing past tenants. This does not break Data Protection, because we have been given this information by the applicant and we are using it in the course of business. Do not ask the landlord to explain the answer to the last question, if she/he wouldn’t take them and he/she knows them why would you?
If you are using a Referencing service or agency make certain that they are contacting the landlord and ask what the landlord has said. This is your information because you are the person letting to the tenant do not accept that they cannot share the information because of GDPR.
- I have learned over the years that tenants being able to pay doesn’t always mean that they will pay but I still check affordability because if they don’t pass that we cannot get Rent Guarantee Insurance if we want it.
- If I take a guarantor it must be a UK homeowner and I do check at Land Registry it only costs £3 – tax deductible ; )
- Sometimes I want to take a tenant and they have no family in the UK therefore no suitable guarantor. Fortunately the Tenant Fees Act 2019 does not interfere with rent charges and we can take rent in advance if this is an option. Make it clear on the tenancy agreement that the rent is due on the start date for the whole period for which they are paying in advance and that the next payment is due when that advance period expires. If the tenancy agreement says that the rent is due monthly in advance, as they usually do, this means that we are taking 5 months rent as part of the deposit which is in breach of the Tenant Fees Act which only allows us to take 5 weeks rent as deposit. It must be clearly rent in advance.
- I know that some landlords/agents ask for 3 months pay slips, I no longer do this because, as I have said earlier, ability to pay doesn’t mean that a tenant actually will pay. I haven’t had many bad debtors over the years but one that always stands out in my mind had a high powered job with a great salary – and a lifestyle which that salary didn’t cover. I have also had many tenants who just scrape in on affordability but who prioritise their rent, council tax and utility bills and they pay like clockwork because that is how they keep on top of their expenses. I suppose if you do this you can check to see that the rent is going out each month to their current landlord and in that respect it’s worthwhile.
- This isn’t very technical but I cannot deny that I do listen to the little voice in my head, often called “gut feeling”. If I get a message from the little voice warning me I always pass on that tenant, even if I can’t justify it. That doesn’t feel fair but when I have ignored that voice outside of my property business I have always regretted it for various reasons. I am not advocating this but I know many successful landlords who do.
- I like prospective tenants who ask about the bills, that means that they are responsible. I like the ones who ask whether there is a vacuum cleaner or lawnmower. I like the ones who are looking for a long term home, I always offer 6 months to begin with to let them decide whether they like living in the property and me and to give me the opportunity see whether they are a suitable tenant but I am always looking for long term tenants because turning a tenancy is expensive and at each turn the risk of taking a bad tenant.
After this period of confinement we may find that tenants will look for a new home:
Some will need more space because they will continue to work from home.
Some will want more outdoor space because they were aware of the lack during lockdown.
Some will want to live in a new area because they will be working from home and don’t need to be near to an office/business premises etc.
And some will just be fed up of looking at those four walls and need a change.
I always do my best to keep my tenants happy, even doing repairs or replacements which are really not necessary, allowing pets, posters and picture on the walls, decorating to an agreed standard and colour range. I’ve got some really great long term tenants (over 30 years) and several over 10 years and on my shorter term properties (apart from students) they average over 4 years now. I must be doing something right.
