15 Steps to help prevent your tenant from falling into arrears
The rental market in the UK is big business! Private landlords account for nearly a quarter of the rental housing stock and the figure is rising as the cost of home ownership increases.
Landlords provide a valuable service which helps meet the needs of the country’s housing shortage.
Some 81% of rental properties are owned by landlords with only one property, with a vast number purchased using some type of borrowing, e.g. a mortgage.
Late or non-payers can have a profound impact on some landlord’s ability to meet their obligations to their lenders and this can also lead them to default.
So how can landlords protect themselves against non-payment?
The truth is you will never stop people from defaulting on their rent. To put it frankly, landlords are in a risky business. The rewards or yields might be attractive but there is always going to be an element of risk.
What landlords can do is to take prudent steps from the outset to help minimise or prevent bad or non-payers from eroding their margins.
One of the most important things landlords can do to help protect themselves from a bad payer is to avoid renting their properties to people with a history of bad credit or County Court Judgments.
A minor CCJ for something such as a small dentist bill can be forgiven, but prospective tenants who have a history of unpaid bills or Country Court Judgments should be avoided at all cost.
We see it time and time again. Clients that come to us for help when their tenants fall into arrears, only for us to find out that their tenants have a history of poor credit, with County Court Judgements.
A fair proportion of landlords use letting agents. However, this does not mean to say that poor quality tenants won’t slip through the net. We were recently instructed by a client to collect rent arrears on a judgment that was owned by a former tenant who was declared bankrupt two years prior to his tenancy. Our client was adamant that had he been made aware of the bankruptcy by his letting agents, he would have told them to reject the application.
Clearly, the letting agent failed to do due diligence correctly because a simple basic free check; by looking at the bankruptcy and insolvency register, could have prevented this from happening.
Crucially, in business, “Know your customer” is a fundamental principle. Your tenant is your customer and you should try and find out as much about him as possible!
Here are some other simple rules:
2 “Known your Customer”
It is really important that you know your tenant. Treat your tenant as a “customer”. A good customer relationship pays dividends! If you get to know your customer well, not only are they more likely to look after your property, you are more likely to find out sooner rather than later if there is a problem with payment or anything else for that matter.
3 Credit Check your Customer
If landlords are self-letting then it is essential that they have access to the right tools that will enable them to conduct their own due diligence, such as credit checks. For less than £40, we can provide you with a Tenant Credit Check. (For more information please click here:). https://firstcapitol.co.uk/tenant-credit-check/ We use data from Equifax and Experian credit reference services. We provide a detailed summary of your prospective tenants’ credit history over the last 6 years which include any defaults, County Court Judgments or bankruptcy.
4 Ensure that your Terms & Conditions are legally drafted
Your Terms and conditions should be properly, professionally and legally drafted. The vast majority of tenants are not stupid. They know their rights! You would be surprised to know how many landlords there are out there that do not provide their tenants with legally drafted agreements. last year I came across a client who had made pages and pages of handwritten supplements to his tenant’s agreement. It was not illegal; as both parties had signed the amendments, but it was very confusing all the same and could quite easily cause a problem under scrutiny. There are a number of websites offering rental T&C agreements for sale which are perfectly legal and can be downloaded after the appropriate fee has been paid. Therefore, there can be no excuse. If you are not using a letting agent and are in doubt, you should consult your solicitor.
5 Always obtain proof’s of your tenant’s identities and if possible professional references
Anyone can provide copies of fake but “genuine” looking bank statements or utility bills. Despite a clampdown, there are dozens of website offering these types of services for a pittance. Nowadays, Identity checks are quite simple, quick and easy. For under a fiver, Hooyu (click here for more information: https://www.hooyu.com/ ) can provide you with a full identity check. Also, it would be wise to insist on professional references. Don’t forget to check the authenticity by writing to or phoning the referral yourself.
6 Whenever possible ask for a guarantor
If there is no credit history or your prospective customer is a first-time renter, then you should ask for a guarantor. Guarantors that are homeowners are usually quite good because if things go wrong with your tenant you could have somewhere to “hang your hat” after proceedings (Charging Order against their home). Also, most upstanding/professional people wouldn’t want their name dragged through the mud and risk a County Court Judgement especially if it is no fault of their own. Parents who guarantor for their children are usually good at ensuring that their offspring pay up! Guarantors should also be credit checked.
7 Never accept cash payment
This may sound stupid, but avoid cash payers at all cost! Large upfront cash for rent in advance can be tempting. However, I am afraid to say that in my experience people who insist on paying in cash are probably up to no good! Drugs and other illicit activities spring to mind. In this day and age, there is no excuse for anyone not having a bank account unless they have something to hide. Also, if something came to light which involved Her Majestys Constabulary you could have some explaining to do – money laundering etc, springs to mind. The taxman could also catch up with you. It really isn’t worth all the bother. The days of landlords collecting rent in cash are long and truly over. Above all, it’s somewhat creepy!
8 Visit your would-be “customers” before/during the application process
Try and visit your would-be “customers” at their current property unannounced. This should give you a fair indication of how they live. You’re not looking to see if they haven’t washed up last night, you are looking to see if they have trashed the place such as holes in the doors, broken windows or if their settee or car parts are left outside in the front garden! All usually a good sign of how they live and shouldn’t be ignored.
9 Always ensure that your “customers” full names are spelled correctly
Ensure that you have spelled their name/s correctly in the Tenancy Agreement and remember to include middle names! Remember, landlords have a legal obligation to collect the necessary identification to ensure that their “customers” have a “Right to Rent”. It doesn’t necessarily mean that you will never attract arrears. However, it most certainly will make it easier should you decide to terminate the tenancy as it will be clear who you are evicting and who to pursue any arrears. If you are using a letting agent then any good agent worth their salt will ensure that their agreement holds up to scrutiny.
10 Check out your agent’s reviews
If landlords are using a letting agent they should satisfy themselves that the agent is competent to manage their property and not take their word for it. Although the Government has taken some steps to tighten up the industry, unfortunately, there are still a lot of cowboy agents out there at the moment.
11 Always instruct bonafide letting agents who have the right credentials
Ask to see your prospective agent’s credentials. For starters, you should ask to see which body they are a member of. Since October 2014 all letting agents by law are required to be a member of one of three government redress schemes. If they are a member of any of the approved bodies then don’t just take their word for it; check their credentials online.
1) The Property Ombudsman.
2)The Property Redress Scheme.
2)The Ombudsman Services.
If your agent or prospective agent is not a member of any of the above schemes, then my advice would be to run away as fast and as far away as possible. Other schemes are available. However, agents are not legally required to be members of these, which are;
The National Approved Lettings Scheme (NALS)
The Association of Residential Lettings Agents (ARLA).
12 Investigate taking out rent protection insurance
Protect yourself by taking out some form of insurance. Nowadays you can insure just about anything and there is some very good rent guarantee insurance products out there. It provides that should your “customer” fail to pay, then the insurers (subject to their Terms and Conditions) will step in and cover the missed payments. However, it’s worth doing some of your own research first and in doing so, don’t forget to read the small print before you sign up for anything.
13 Be proactive – don’t wait until arrears build up
Late or non-payment should be tackled immediately. In some instances, some people who generally fall on hard times such as a change in their circumstances which may be due to redundancy, illness or a change in welfare payments should be managed quickly, as it is best, if you can, to avoid the problem getting worse. With our Door-Step Collections service, we can help you to establish your “customers” circumstances, face to face. There is a big difference with the “can’t afford to pay and the won’t pay”, which could be down to your “customer’s” lifestyle and or priorities. In these circumstances, sometimes, it is important to take the “personality” out of the situation. Let’s face it, owing money can be quite embarrassing and some people prefer to hibernate rather than face up to their obligations. We have over one hundred professional agents available nationwide. By using our Door-Step Collections service we are able to take the “personality” out of dealing with the collection process. For more information, please click here: https://firstcapitol.co.uk/doorstep-collections/
14 Keep your property in tip-top condition – don’t invite complaints
It is not all just down to tenants – landlords can be the cause of non-payment. According to the charity Shelter one in 33, that is 3% of people renting is currently renting from a dodgy landlord, while a further one in 20 that is 5%, said that they have done so in the past 12 months. Damp and poor state of repairs tends to be the key issues. Houses do not look after themselves! Properties that are regularly maintained and in good condition can protect landlords from incurring late or non-payment. Landlords should ensure that their properties are kept in tip-top condition at all times.
15 If you need to evict -make sure you follow the letter of the law.
Finally, should it become necessary to evict your “customer”, make sure you do it right! So many landlords fall foul at the first hurdle by incorrectly completing or serving Section 8a or 21; “Notice to Quit”. The golden rule is if in doubt then leave it out! For help drafting or completing documents, call in a professional, such as a solicitor. If you are worried about the cost; nowadays there are several solicitors that can provide a complete service from start to finish (eviction) for a fixed fee. Do not attempt to evict your “customers” yourself using other means. I know it is tempting! But it is also illegal and if you are caught you would undoubtedly receive a custodial sentence, an unlimited fine and be ordered to pay your “customers” compensation. Your “customers” have rights and however they may seem painfully unfair – you have a duty to respect them and the law.
If you require a professional Process Server, we have over one hundred agents that are available nationwide, who can personally serve your “notice”. For more information please click here: https://firstcapitol.co.uk/services/nationwide-process-serving/