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If a tenant stops paying rent, it can cause numerous challenges for the landlord.
Chasing up tenants for rent payments is not only unpleasant but also time-consuming, especially if the tenant tries to avoid the landlord’s communications. But, unpleasantness aside, rental arrears can also put the landlord in financial trouble, particularly those who rely on these payments to cover their mortgage.
While it’s impossible to mitigate the risk of tenants missing rent payments completely, there are plenty of protective measures landlords can take to reduce the risk of running into such issues.
In this article, we’ll reveal 12 strategies for preventing rent non-payment and maintaining a reliable stream of rental income.
12 strategies for reducing the risk of tenants falling into rent arrears
We’ve compiled a list of twelve strategies for minimising the risk of rent non-payment and creating a positive rental environment that promotes timely payments and a healthy, respectful relationship between landlord and tenant. Integrate these strategies within your rental operations to begin running a more reliable and financially secure rental property portfolio.
Thorough tenant screening
The most effective strategy for minimising the risk of rent non-payment is to screen prospective tenants thoroughly and be very careful who you rent to. At a minimum, a thorough screening process should include checking employment references, previous landlord references, a credit check, and requesting proof of earnings. You can find out more about how to develop a thorough screening process in our article on how to screen for reliable tenants. Remember, if your gut feeling is that there is something off about a prospective tenant’s history or references, then it’s safest to steer clear.
Clear communication
Open and transparent communication is the secret to all good relationships, including the relationship between landlord and tenant. Maintain open and regular communication with your tenant and show flexibility, understanding, and compassion. If you have a healthy and trusting relationship with your tenants, they are more likely to feel comfortable coming to you if they are having problems covering rent.
Be clear about payment terms in the tenancy agreement
Communicate clearly at the start of the tenancy what your payment terms are, what the tenant should do if they are going to be late paying rent, acceptable payment methods, and any implications of paying late. Laying ground rules helps to establish clear expectations from the start.
Have a system for tracking rent payments
Landlords must be on the ball when it comes to tracking rent payments. You should have a reliable system in place to identify missed payments and enable you to follow them up immediately. Addressing payment issues as soon as possible can prevent them from escalating, making resolution simpler and less stressful for both landlord and tenant. Specialist landlord software like Landlord Vision can notify you immediately when a payment is missed, ensuring that late payments never slip through the cracks.
Be flexible about payment terms and dates
While it’s important to establish clear payment terms, incorporating a reasonable degree of flexibility can really help tenants meet their obligations on time. Allowing tenants to choose which day of the month they’ll pay rent and a payment method that suits them can help achieve more consistent and timely payments.
Encourage tenants to send automatic rent payments
Ask tenants to set up automatic rent payments to reduce the risk of missed payments due to human error or forgetfulness. Automated rent payments like standing orders and direct debits help ensure that rent is consistently paid on time, simplifying the payment process for both tenants and landlords.
Report rental payments to the Rental Exchange
Landlords can incentivise tenants to pay their rent on time by reporting their rental payment data into Experian’s Rental Exchange. The Rental Exchange then gives tenants credit for paying their rent on time, helping them build up a positive credit report. However, if tenants are late with their rent or miss a payment, it will negatively impact their credit score.
Charge a fee for late payments
Some landlords charge tenants a fee for every late payment. If you decide to charge a late fee, make sure the terms of the fee are written into the tenancy agreement and highlighted to tenants at the start of a tenancy. While late fees can be effective in deterring late payments, landlords should apply them with caution, taking into account the tenant’s individual circumstances. If a tenant is facing genuine financial difficulties, consider waiving the fee. This act of understanding and compassion can help to alleviate their stress and build stronger relations.
Incentivise prompt payments
In addition to penalising late payments, landlords may wish to incentivise timely payments. The incentive doesn’t need to be huge—many landlords offer a reduction in rent for the final month of the lease if all other payments have been made on time. This strategy promotes prompt payments and can also help to boost tenant satisfaction and loyalty.
Request a guarantor
A guarantor is a person who agrees to pay rent for the tenant if the tenant cannot pay and falls into arrears. Landlords commonly request guarantors when dealing with tenants who are more at risk of falling into arrears, like students, to provide the landlord with some additional financial security. Often, if a tenant is late at paying rent and uncommunicative, sending a notification to the guarantor and requesting payment is enough to prompt the tenant to pay up.
Take rent in advance
Accepting rent in advance can benefit both landlords and tenants, although it is not a suitable strategy for everyone. Paying a lump sum of rent is usually only feasible in certain circumstances. Students, particularly international ones, receive a lump sum from student loans and may find paying rent upfront can simplify their financial planning and budgeting. Some landlords also choose to accept tenants with a poor credit history, providing that they can pay their rent in advance. Paying rent in advance helps to reassure landlords of a tenant’s financial reliability and commitment.
Offer a rent payment plan if needed
If your tenant is having problems paying rent in full and on time but is being open and communicative and has otherwise always been a reliable tenant, offering a rent payment plan may be an effective way to help them get back up to speed with their payments. A payment plan helps spread the cost of what is owed over a period to make payments more manageable. If you do decide to go down this route, make sure you put the terms of the repayment plan in a document and have the tenant sign it.
Preparing for and safeguarding against non-payment of rent
While the strategies outlined above can help to significantly reduce the likelihood of tenants missing payments or falling into arrears, landlords should still prepare themselves for potential problems. Even the most tightly run ship runs into choppy waters at times, so it’s essential to prepare for issues to minimise stress and mitigate the impact if a tenant suddenly stops paying rent. Being prepared can help protect you against running into serious financial problems and help you resolve issues promptly and professionally.
Take out an insurance policy that covers rent arrears
To gain financial protection against non-payment of rent, landlords can add a special type of insurance called Rent Guarantee Insurance (or Tenant Default Insurance) to their landlord insurance policy. Most rent guarantee policies can only be used if the landlord is seeking repossession of the property. These policies usually cover lost rental payments for six to twelve months, landlord legal expenses, and access to a legal advice helpline. Always check the terms of the insurance policy carefully to ensure you understand exactly what the policy does and doesn’t cover.
Keep money saved aside to cover missed payments
To prevent unnecessary stress, it’s important to always have a pot of money set aside that will tide you through a few months (at least) of rental payments should you run into any problems filling a vacancy or with a tenant who stops paying rent. You should plan your finances carefully before you even begin renting out a property, making sure that you will earn enough to put some money aside after covering all your expenses.
Know the law and your rights
Don’t leave it until you run into problems before you research what to do in the event that your tenant stops paying rent. Ideally, you should have a clear understanding of the law, your rights, and how to lawfully evict a tenant before you begin letting property. If you already manage a buy-to-let, start reading up on the eviction process and setting out a procedure or process for your own rental business. Swotting up now could save you a lot of stress and hassle later down the line, helping you to deal with problem tenants quickly and professionally.
Document all problems
If you ever need to evict a tenant or take one to court, then you’ll need to have plenty of supporting evidence and documentation of communications to support your case. Get into the habit of keeping meticulous documentation of any communications or issues you have with your tenants. Specialist landlord software like Landlord Vision can be useful for keeping organised records. This way, if you need to take action against a tenant, much of the admin will already be taken care of.
Landlords’ rights when tenants stop paying rent
And if the worst happens and a tenant stops paying rent and goes AWOL, well, don’t panic! The law offers protection for both landlords and tenants in such situations.
First, you should take reasonable steps to communicate with the tenant and try to resolve the issue amicably. Depending on the tenant’s reasons for missing rent, you may be able to agree on a repayment plan, or the tenant may be eligible to claim financial help to cover their rent.
However, if you’re experiencing a complete communication breakdown and cannot resolve the issue with the tenant, there are a couple of routes you can take. The first is to evict the tenant using either a Section 8 or Section 21 notice. The other is to take the tenant to court. Before initiating either of these steps, it’s crucial for landlords to thoroughly understand their legal rights and obligations when a tenant stops paying rent to ensure they proceed correctly and lawfully. Landlords who try to evict tenants unlawfully could find themselves facing even bigger problems – including legal action, criminal charges, or a compensation claim.
The government website provides more detailed information about the rules and regulations surrounding dealing with rent arrears.
Every landlord will inevitably encounter problems with a tenant who stops paying rent at some point when running their rental business. However, adopting proactive strategies to reduce the risk of rent arrears can significantly reduce the amount of time you spend chasing up late payments and dealing with the fallout from non-payment. Many of the strategies we’ve highlighted in this article will help you not only build a more financially secure rental business but also build stronger relationships with your tenants.
