A landlord’s guide to rental arrears

While most tenants pay their rent on time and in full, things can go wrong. People can lose their jobs, fall ill or simply find that cost of living pressures make it hard to make ends meet. Given the current climate of high rental increases, high inflation, and high energy prices, it’s not surprising that growing numbers of people are falling into rental arrears.

A March 2022 report by Citizens Advice found that one in six tenants was worried about being able to pay their rent over the next three months. At the same time, it estimated that 425,000 renters –nearly one in ten – were in arrears, owing an average of £937 each.

When tenants fall into rental arrears, it has a knock-on effect on landlords. According to the government’s English Private Landlord Survey 2021, 43% of landlords own only one rental property, representing 20% of all tenancies. For many of these people, rental arrears can result in them struggling to pay their buy-to-let mortgages.

In this article, we look closer at how to support tenants who have fallen into arrears, the steps you can take to resolve the problem and the types of insurance that can protect you from loss of rental income.

• What are rent arrears?
• What to do if my tenants get into rental arrears?
• Understanding why my tenant is not paying rent
• How far back can a landlord claim rent arrears?
• Can insurance help with rental arrears?
• Does landlord insurance cover rent arrears?
• FAQs

 

What are rent arrears?

Rent arrears are partially or fully missed rent payments. Late rental payments are also considered to be arrears until they are settled. You can learn more from this government guidance.

 

What is classed as a late payment?

A late payment is any payment made after the rent due date. This is set out in your tenancy agreement. However, under the Tenants Fees Act 2019, a landlord cannot charge a late fee unless the rent has been outstanding for 14 days or more. The late fee can be no more than 3% above the Bank of England’s base rate for each day the payment has been outstanding.

 

What to do if my tenants get into rental arrears?

Your tenant may contact you if they’re having financial difficulties and think they might have problems paying their rent. If they have a short-term financial problem, you may be able to agree a solution with them. For example, if they can’t pay the full rent for that particular month, you may agree to add the shortfall in instalments to future payments. You could also help by pointing tenants to advice on budget planning and help with working out a budget. It may be that a fresh look at their finances makes it easier for them to pay rent in the future.

Be aware, though, that financial difficulties are an uncomfortable subject for many, and your tenant may not feel at ease approaching you to discuss their issues. If this is the case, you should be compassionate and understanding when speaking to them.

 

Understanding why my tenant is not paying rent

If a tenant falls into arrears without speaking to you in advance, there are a number of steps you can take. First, you need to understand why they can’t pay rent. This will help you decide what action to take next.

 

Talk to your tenant(s)

If a tenant misses a payment, wait three or four days to see whether they pay it late. If no payment is received, bear in mind that financial difficulties are an uncomfortable subject for many, and your tenant may not feel happy approaching you to discuss the issue. If this is the case, you should try to be compassionate and understanding and contact them to discuss.

You could give them a call, text them, or drop them an email. If they respond and the problem is only temporary, you may be able to agree on a solution.

 

Follow up with a letter

If you get no response, you need to follow up with a formal letter. We’d recommend sending this by ‘signed for’ delivery. This will give you evidence that the tenant received the letter.

The letter should be polite and request that the tenant contact you to discuss the situation or that they pay the arrears urgently. You’ll need to explain that unpaid arrears can lead to court action. Tell the tenant that if arrears reach two months or more, you may apply to a court for a repossession order.

You can use a template letter from Which?, available on this page.

 

Contact the guarantor

If you don’t hear anything from the tenant and no payment is received, you could write to the guarantor if they have one. Tell the guarantor how much the rent arrears are and when they were due. Politely ask that either the guarantor or the tenant pay the balance immediately. Again, inform the guarantor that failure to pay could result in court action.

Which? has a template letter you could use here.

 

When can a tenant withhold rent?

There are very few circumstances in which a tenant can legally withhold rent. The main one is when a landlord fails to make repairs that affect a tenant’s current or future safety (see our article on landlord responsibilities). These might include things like unsafe electrical systems, broken toilets, or serious damp or mould.

If the tenant is not responsible for the issue or damage, they can use rent to pay for repairs. However, they can’t do this without informing you and giving you the opportunity to sort it out yourself. They must write to you and report the problem first. If you don’t reply, they need to write again telling you they intend to get the repairs done if you won’t. If you still don’t respond, they can send you quotes for the repair work. If you still don’t reply, they may get the work done at the lowest quote. They can then ask you for reimbursement. If you don’t reimburse them, only then can they inform you that they will deduct the cost from future rental payments.

In almost any other circumstance, tenants can’t withhold rent without breaching the terms of their tenancy agreement.

 

What to do if they’ve still not paid or communicated with you?

You may have to take further action, if you don’t get a response from the tenant or the rent guarantor (or if they refuse or cannot pay). If you have landlord legal expenses insurance, consult your insurer before taking action.

 

Notify intention of claiming possession of your property

The next step you can take is to serve a notice seeking possession (NSP). This is a notice that you intend to bring proceedings against the tenant unless they leave the property by a specified date.

The Housing Act lays down certain circumstances (Grounds) under which a landlord may successfully apply to court for possession. The grounds for possession fall into two categories: mandatory, where the tenant will definitely be ordered to leave if the landlord can prove breach of contract, and discretionary, where the court can decide one way or the other. When tenants are behind with the rent, you’ll normally serve a Section 8 notice. You can serve this under Ground 8 for possession. This can be used when the tenant is more than eight weeks in arrears (if rent is paid weekly or fortnightly), two months of arrears (if paid monthly), or three months in arrears (if paid quarterly or annually). Ground 8 is a mandatory ground, meaning it usually leads to eviction.

You can also serve the Section 8 notice under two discretionary grounds. A court will consider these, but they are less likely to lead to eviction. They are:

• Ground 10: the arrears are less than specified by Ground 8
• Ground 11: the tenant is persistently late in paying rent (the tenant doesn’t need to be in arrears at the time for this Ground to apply)

You can serve a Section 8 notice under any or all of these grounds.

Another option is to serve a Section 21 notice. Otherwise known as a ‘no-fault’ eviction, these can be used after the first four months of a tenancy. If the tenancy is fixed term, you can ask the tenant to leave at the end. If the tenancy has no fixed end date, you must give at least two months’ notice.

There are strict rules concerning the validity of Section 21 and Section 8 notices, so be sure to comply with them. It’s worth noting you can serve Section 21 and Section 8 notices at the same time.

 

Bring eviction proceedings

If a tenant brings their rent up to date after receiving an NSP, you may wish to let them stay in the property. If they don’t bring their rent up to date and they don’t leave the property by the specified date, you’ll need to bring eviction proceedings.

Essentially, you’ll need to apply to court for a possession order. This is a formal notice from the court that the tenant must leave the property by a certain date. A court-appointed bailiff can enforce the eviction if they still don’t leave. You can learn more about the process from our article: how do you evict a tenant?

 

How far back can a landlord claim rent arrears?

If you want to pursue a tenant for rent arrears, you can claim them up to six years after the money is due. As long as you have the tenant’s new address, you can go to the Small Claims Court and get a County Court Judgement for the arrears. You then have six years to enforce the CCJ. If the tenant doesn’t pay, you can get it enforced by a County Court Bailiff, who can take the tenant’s personal belongings and sell them. Alternatively, you can ask a court for an Attachment of Earnings Order. This will deduct payments from the tenant’s wages or benefits.

However, many landlords decide not to pursue tenants for rent arrears as it can be an expensive process with no guarantee of getting the money back.

 

Can insurance help with rental arrears?

Yes, absolutely. If you take out rent insurance – otherwise known as rent guarantee insurance – it will pay out if a tenant fails to pay the rent. You can cover up to £2,500 rent per month for up to 15 months. A policy from Alan Boswell Group will also give you legal expenses cover (including eviction costs), plus 75% of monthly rent cover for up to three months after eviction. Rent guarantee insurance is an excellent way to give you peace of mind, but you’ll need to comply with its terms and conditions – including providing evidence that the tenant was referenced and passed affordability and that you have complied with your legal duty to your tenant. Legal expenses insurance also provides a legal expenses helpline, which you can consult for advice as early as the first missed rental payment.

 

Does landlord insurance cover rent arrears?

No, landlord insurance policies cover the building. But it’s relatively inexpensive to add rent guarantee insurance to your cover.

 

FAQs

How can I prevent rental arrears in the first place?

While it’s impossible to guarantee a tenant won’t fall into arrears, there are steps you can take to make it less likely. We’d always recommend thorough tenant referencing at the outset of a tenancy. This is designed to check tenants can afford the rent and don’t have credit problems or a history of bad tenancies. Asking for the rent to be paid by direct debit or standing order can encourage tenants to ensure there’s sufficient money on rent payment day.

Is it worth getting rent guarantee?
Rent guarantee insurance is a wise investment. Some landlords will opt for a rent guarantor instead, but they will still have to pursue the guarantor if the tenant defaults. This can be expensive. Good rent guarantee insurance covers your income, and the insurer will also pursue a guarantor if appropriate.

Can I evict a tenant immediately for non-payment?
Not normally. Tenants generally have to be at least eight weeks in arrears before you can start proceedings. However, if a tenant is persistently late in paying rent, you could evict under Ground 11 of Section 8. This is a discretionary ground, so it’s not guaranteed an eviction would succeed.

 

As you can see, things can get complicated – and expensive – if a tenant falls into rental arrears. If it happens, it’s crucial to try and communicate with the tenant to find a resolution. If you can’t come to an agreement, you may have to go down the route of eviction. This can take months, leaving you not only with a lack of rental income but also expensive legal bills – further adding to the costs of being a landlord. By taking out rent guarantee insurance, you not only make sure your income is protected but your legal costs will be covered.

 

Alan Boswell Group is one of the country’s leading providers of award-winning landlord insurance products. For further advice and information, check out our landlord advice hub or call our landlord insurance experts on 01603 216399.