Tenants "in worse debt since the '80's". How could this impact YOU?

[Vanessa]

I found this via the BBC on Twitter. We, as LL's, need to be prepared that there are going to be more rent arrears on the horizon. What are your experience of rent arrears? Are they rising? I currently only have one tenant who is behind on the rent by one month. He has been made redundant from the hotel industry and has handed in his notice.

I think this is a problem that is going to grow and it is going to have a massive impact on those that do not have sufficient funds to cover voids. This is again why the "NMD brigade" must be discouraged as it will make our industry unsustainable.

Anyone who is struggling to put a deposit down for a property should take note of the below.

UK housing tenants are more in debt than at any time since the late...

Hundreds of thousands are falling behind with rental payments, largely due to rising unemployment, according to the National Landlords Association.

The situation was "pretty dire" with at least a third of members owed money, the association added.

In the past year, the association has taken more than 20,000 calls from landlords worried about rent arrears.

'Stressful'

Landlord Rukhsana Kashmiri is owed nearly £9,000 in rent on her property in north London, after both her tenants lost their jobs.

"I'm on anti-depressants and pain-killers, " she says. "My health is not good, and my whole body is aching."

However tenants are also coming under severe strain.

Zoe Abbey, 21, from Watford, fell behind with her rent after failing to find a job. .

"It wasn't very nice. You've got the landlord on the door all the time, and you're getting letters."

Apart from rising unemployment, another issue is that housing benefit is now paid directly to tenants.

Many landlords use to receive the payments themselves.

There can also be a delay of up to two months before housing benefit comes through.

Adam Sampson, of the housing charity Shelter, said the government should now offer support to tenants in the same way it has given help to debt-laden homeowners.

"The government needs to look to see how the payment of housing benefit can be speeded up. Otherwise more tenants are likely to become homeless."

Landlords are also being urged to be sympathetic to the plight of tenants who lose their jobs, and cannot pay their rent as a result.

"They should talk to their tenants - give them a breathing space," said Duncan Shrubsole from the charity Crisis.

With unemployment expected to rise further over the coming months, most expect rental arrears to go up too, with observers saying this will inevitably also lead to more evictions as well.

[Tessa Shepperson]

People may be interested in an article I wrote a while back for my web-site called 'Dealing with Rent Arrears - Some Different Approaches', which you can read on my web-site here http://www.landlordlaw.co.uk/page.ihtml?id=74&catparid=64&s....

For example I suggest taking a less aggressive approach if the arrears are not really the tenants fault and suggest alternative solutions such as reducing the rent either permanently or just temporarily. Let me know what you think.

[Vanessa]

Thanks for that Tessa. You are such a mine of useful information. I believe that if you have maintained and nurtured a good relationship with your tenants, it is best to try and speak to them and get an understanding of their problems, so that you can work with them to solve them in an amicable way. I agree an agressive approach is the wrong way to react. I strongly feel that, if I can communicate with tenants, then there is a way forwards. Once they start ignoring calls and not responding to emails, you know you have a fight on your hands.

[Tessa Shepperson]

My response as a lawyer is that when the arrears reach two months (i.e. when the mandatory possession ground kicks in), you should serve a section 8 notice and then start the eviction procedure. If they have not responded to you within two months it is arguable that they are never going to. As getting possession takes at least three months, you do not want to delay. You can lose a lot of money in that time.

Also of course, if they realise you 'mean business' they may pay up. It is better for them to realise this earlier than later, because after a while the arrears will reach a point where they can never, realistically, be paid off. I have had landlords come to me with tenants in arrears of thousands of pounds. Which they will never recover.

[John Corey]

My position is closer to Tessa's legal position than Vanessa's. I am not interested in having my tenant's problems become my own. While there are some things that are out of the hands of a tenant that does not mean I should step up and loan them money. The lease agreement did not have conditions such as holiday expenses, loss of a job or other exceptions to paying the rent in full.

If someone asks you for a loan and you decline why think of it differently if they owe you money for something you provided (tenancy)?

Start the legal process ASAP and make it very clear to the tenant that you will do so or have done so. If they want to propose a solution that addresses the issue in the mean time they can offer you their best solution. The landlord can stop the legal process is resolution has been achieved. You want to be first in line rather than last in line when it comes to how they allocated their limited capital.

When a tenant is late I remind myself that my lender will not allow me to be late. The lender expects me to be a buffer between some external event and my ability to pay. The tenant needs to view it in the same way. If something happens and they can not pay they still need to find a way. Have them sell something or agree to move early to limit the damage. If the tenant could convince my lender to skip payments with no downside I will have the tenant speak with my lender. No tenant has every indicated that they could convince a bank that being late was acceptable.

Charity is charity and business is business. Do not mix the two. If you want to provide the tenant with some free money ring a charity and let them pay the tenant's rent with your donation rather than train the tenant that you are a bank where they can make unlimited withdrawals. Do not tell the tenant if you funded the rent through the charity. It was a donation and nothing more. Otherwise see them in court. Most tenants will not go to court unless you have operated illegally or failed to keep your paperwork in order.

John Corey
www.ChelseaPrivateEquity.com/blog

[Vicki - qps]

I am in split minds....

I agree in the first instance that if you make your tenants aware that they can come and discuss rental payment issues with you from the off set then you will find it a lot easier to deal with them if it happens and chances of them paying you back greater as they respect you and you respect them (respect goes along way)

also on this: in my experience this year I have had one lady be made redundant from a big blue chip organization, she was devastated she called me the moment she found out and ask me if I could release her from her tenancy, my reply was that I could not just release her but I understand her situation and if she was happy for me to put it on the market whilst she stayed on to see if I could let it early, if I could I would release her from her tenancy early and providing she paid any costs occurred and paid the rent up until this point then I would be happy to help....

The tenant was very grateful and lucky for us both I found someone within 2 weeks and placed them in within that time.

So my point is that communication is the key I could have easily been a stickler for the rules but would I have been any better off??....this way I did not have to get into a legal battle over rent arrears and she did not have to go through the stress and the financial issues that she was facing.


Slightly contradictory but this is why all cases vary:
On the other hand there is a type of tenant out there whom could not care less about your situation with your mortgage because lets face it in their eyes you are doing much better than them 'as we have loads of money' not always the case but this is the stereo type of a landlord in their eyes....so for some reason the tenant wants you to take note of their problems but does not consider yours and generally speaking this means trouble!

If the case is that you are not getting anywhere from the nice approach then the legal route is the only route.

For me it all depends on the situation


KR

Vicki

QPS

[Vanessa]

This is a problem that is only going to get worse. If you have to go to eviction, factor in a lot more time and contingency to cover mortgage payments. Particularly interesting to note, that the biggest problem area is city centres ....

Evictions take longer a courts clog up ....

EstateAgentToday.co.uk - 8 May 2009

Eviction service Landlord Action says it is now taking three months just to get a hearing date because the county courts are so busy as the housing market crisis hits home.

Director Paul Shamplina said: “Of course, this delay means more lost rent. Judges and bailiffs are inundated. Not only are there landlord and tenant eviction cases to deal with, but repossessions are at a 15-year high, thereby increasing their workloads.

“The landlord has no choice but to sit in the queue and wait.”

Shamplina said there has been a ‘significant’ rise in landlords wanting to get rid of bad tenants, and that landlords are not only suffering financial hardship but stress.

He said: “I have just completed filming for BBC Breakfast News in which I was accompanied by a film crew when serving notice on a tenant who owed nearly £9,000 in rent on her property.

“The landlord was a widowed mother of three who had bought the property to give herself an income when her husband died. She is now suffering from depression and is on anti-depressants and painkillers. She told me her whole body was aching due to the stress.

“In city centres, including Manchester, Liverpool, Birmingham and London, we have seen a 20% rise in the last year in the number of landlords contacting us to help them evict their tenants due to non-payment of rent.

“There are an increasing number of tenants losing their jobs, and paying the rent is not always at the top of their priorities. Being just one month late with the rent can lead to the landlord experiencing mortgage arrears and so they are doing everything in their power to rectify the situation as soon as possible. Our advice line has been overwhelmed with calls for assistance.”

[John Corey]

“The landlord has no choice but to sit in the queue and wait.”

It may be possible to ethically bribe the tenant in exchange for a quiet departure. You offer them money to leave, payable when you get the keys and the place is cleared out. Not a great idea but better than waiting multiple months while the court backlog clears. Just make sure you get the paperwork sorted so it is clear the tenancy has ended by mutual consent.

John Corey
www.ChelseaPrivateEquity.com/blog

[Gareth C Thomas]

I have a situation whereby a housing benefit tenant has been served the correct S21 notice but the council housing officer at the homeless persons unit refuses to rehouse the tenant. Their advice to the tenant is to sit tight and wait until I, the landlord, has court possession order.

 

The tenant is not in rent arrears (the rent is paid by Housing Benefit via the agent) so I can't use a Section 8 notice.

 

Does anyone have any ideas about how I should go about repossessing the property myself, e.g the forms I need to complete, the paperwork required , contact numbers, web address and emails etc.

[Jonathan Clarke]

I am relaxed ( perhaps to relaxed)  about my own tenants arrears

The ones i manage for other people though its a different kettle of fish. I dont want to let the client down.

With my own DSS tenants  though unlike JC  I do mix business with charity and the two go perfectly hand in hand. 

The payback is sometimes extraordinary in business ( and humanity) terms if i demonstrate a little charity. 

Communication is the key.

If they bury their head in the sand and pretend it isnt happening that annoys me and i act

If they fess up and come to me with a heart rendering story I`m a bit of a sucker for it and we sort out out a plan

Like Susanne though  I keep meaning to toughen up!

I`m kinda lucky I got enough money and some of them go without electric for 3 days so I try to keep it all in perspective.

I wish the likes of Shelter and Crisis would not always see me as the enemy. 

If a tenant owes me back rent I will collect it in dribs and drabs rather than go to court - 

My biggest pay back at the moment  is about 3K. It started about 3 years ago and she is still paying back at £25 a week. She misses a week every now and then. I txt a reminder .  Its a bit cat and mouse. 

It is getting worse I think yes . Christmas is always  a peak time for arears.

Why dont people budget for it. Its not exactly a surprise fixture in the calendar is it.

So if any of my tenants are listening please be warned  . Its about 10mths to go - START SAVING NOW!!  :-)

 

 

[Tumi Hawkins]

@Gareth Provided you have filled in the correct S21, S21(1)(b) issued during the initial fixed term or S21(4)(a) issued after the tenancy became periodic, then you need to wait until after the effective date before issuing court request for possession order.

 

Go the the HMCS website.

 

You need Form N5B

 

Fill it in, and send to the local court with a cheque for £150 made out to HMCS.

 

Then wait for the court notification telling you the tenant has been served notice, and note the date of service.

 

If tenant does not send in defence form within the allowed 14 days, then on day 15, fill in the bottom of the Notice form sent to you, and send it back to court.

 

File will be passed to Judge, who may take another 1-3 weeks to make an order, and and possession will be granted for possibly anything from 3-8 weeks from when you sent back the tear off slip!! All depends on how busy the court is.

My recent experience is that it is now ssslllooooooww.

 

Even if tenant sends in the defence form, it does not mean the judge will not grant possession. Depending on the sob story given, judge may grant the tenant maximum 6 weeks allowed. If tenant doesn't go on possession day, then you start the bailiff process ....

 

simples!!

blog: www.GrumpyOldLandlord.com, twitter: @GrumpyLandlord; facebook: Grumpy Old Landlord

 

Gareth C Thomas said:

I have a situation whereby a housing benefit tenant has been served the correct S21 notice but the council housing officer at the homeless persons unit refuses to rehouse the tenant. Their advice to the tenant is to sit tight and wait until I, the landlord, has court possession order.

 

The tenant is not in rent arrears (the rent is paid by Housing Benefit via the agent) so I can't use a Section 8 notice.

 

Does anyone have any ideas about how I should go about repossessing the property myself, e.g the forms I need to complete, the paperwork required , contact numbers, web address and emails etc.

[Tumi Hawkins]

Vanessa,

I'm already seeing the problems you mention and have written about the slow court process in my blog. I've also picked up and blogged on the issue of rise in tenants with difficulties paying rent.

 

Its only going to get worse, and landlords need to recognise the signs and act fast.

 

I used to be nice, listen, offer help, fill forms, deliver letters to council, you name it, I've done it, just so as to help them keep the roof over their heads. But, I've had the mickey taken too often that I rarely play nice now. And that goes against the grain for me. But I gotta look out for me and my family.

 

I run a business, not a charity or an agony aunt/uncle column. I have enough of my own problems without taking on my tenants problems. The contract is for me to provide a decent home, and for them to pay rent on time and keep it decent. Any deviation is dealt with accordingly.

 

I had a clear out in January, having begun the process back end of 2010. I found myself in court at 1000hrs on the first working day of this year.... I've now had 3 S8 court hearings with possession orders granted, and one S21 order granted - all in January 2011. 2 left on due date, for the remaining two, I now have bailiff appointment dates. You should hear the excuses given, even after they'd been given leeway etc. I will be documenting these in my blog at some point when I find the time.

 

I don't play nice anymore. Get to two months "unpaid" rent and I issue S8. I will also issue S21 if that was not already issued sometime in early part of fixed term.  Note "unpaid" rent, not arrears.

 

If they pay up, fine, we get along ok. I'm happy to agree payment arrangement, but don't mess me about with excuses as to why you decide to break the arrangement. As long as they show they are trying and willing, I'm ok.

 

Trouble is, by the time you get them out, you are 5-6 months down on rent. At £500-£600pcm, that is a fair amount of dosh. And you'd be lucky if the property doesn't need some work doing to it.

 

Act fast, nip it in the bud.

 

blog: www.GrumpyOldLandlord.com, twitter: @GrumpyLandlord; facebook: Grumpy Old Landlord

[Stephen Fay ACA]

I'm with Jonathan on this one ... credit control is an art not a science.  I would love to take a hard line on late-paying tenants - but I know it would be counter-productive.  

 

Many tenants are useless at managing money - in fact, so are many people, full stop!  I live in the real world ... and in the real world, many people live on a financial knife-edge ... the slightest knock & their rent may be late.  It's annoying when it happens - that's life. 

 

One guy at the moment has just been made redundant - been with us about 2 years, nice as pie, was very patient with me last year when we were working on the house.  He told me there was a problem, has chased up a HB claim, and stays in touch weekly - I trust him to pay, and he will really appreciate my flexibility.  

 

We all know that feeling of being chased for a bill ... it's not nice ... and we all know how nice it is when the creditor adopts a softly softly approach - it preserves the relationship. 

 

Stephen Fay ACA

The Property Investor's Accountant

www.fyldetaxaccountants.co.uk