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Home NewsAdvice ClinicMy tenant has lost his job and can’t pay the rent. What should I do?

My tenant has lost his job and can’t pay the rent. What should I do?

Non-payment of rent is one of the issues that, understandably, landlords worry about most. We have strict procedures in place to minimise any potential losses to landlords, if for example a tenant loses their job and cannot pay the rent. Effective communication lies at the heart of this and usually gives the best outcome, as we aim to work together to find an amicable solution. But if this fails and it becomes necessary to evict a tenant, it is essential to follow the correct legal procedures. So let’s take a look, step by step, at what happens from the outset if a landlord finds out that the rent hasn’t been paid.

First, remember that prevention is better than cure. So when you are assessing applicants, thorough referencing is essential to minimise the likelihood of a tenant defaulting (we use a professional referencing company). Having said that, anyone can lose their job so I will explain how we resolve the situation.

The importance of tight credit control procedures

It is essential to have tight credit control procedures in place to prevent the situation from spiralling out of control, so we send a reminder even before the rent is due. If the tenant is late paying, first we call them to find out the reason. If we can talk to them and find out more about their financial problems, we can try and find a solution, without resorting to legal action, which is costly and time-consuming. I will go into this in more depth later on.

For example, if the tenant has now found another job but fallen into rent arrears, we can help them put together a regular payment plan to get them back on track. If they are still out of work and cannot pay at all, the best option is usually to negotiate a surrender of the tenancy. We will need to find a new tenant and the current tenant will have to pay some administration charges but as we have a deposit, hopefully this should cover any costs. They would also need to agree a plan to repay any arrears. This avoids the need to go to court which could incur substantial legal costs which would be the responsibility of the tenant.

Good communication is key

Communication – working towards a solution

If we can’t get in touch with the tenant (we try and contact them by phone, email, text or even a WhatsApp message), we write to them formally and at this point they will incur a late payment fee. We continue to try and contact them for a period of 28 days. Interest on overdue rent and late payment fees will now start to build up. If necessary, we will send one of our team to the property to speak to the tenant and possibly carry out an inspection to check that everything is okay. If the tenant still hasn’t paid the rent after 28 days we recommend that the landlord commence eviction proceedings.

Legal proceedings

When the second month’s rent becomes due and has still not been paid, we request the landlord’s approval to serve a Section 8 notice on mandatory possession grounds. We would instruct solicitors to serve the notice on authorisation from the landlord. This costs approximately £120 including VAT and gives the tenant upto three weeks to pay. After that stage, costs can start to mount up. There will be solicitor’s fees, court fees and barrister charges.

Going to court

Going to court

Once the notice has expired, the landlord can apply for a court date which usually takes around 4-6 weeks but does vary depending on how busy the court is.

As we would normally have mandatory grounds for possession, the judge usually gives a possession order within 14 days. At this stage, we ask for the deposit to be released from the  Tenancy Deposit Scheme (TDS) which will cover some of the unpaid rent. We will also ask for the case to go to the High Court for enforcement.

If the tenant has not left the property by the possession date, a bailiff must be instructed in order to evict the tenant. If permission is given at court to transfer to the High Court, it will take approximately 2-3 weeks.

If the case does not go to the High Court, a County Court bailiff will take approximately six weeks to attend. We will arrange for a locksmith to attend who will then change the locks. In both instances, our own members of staff will be in attendance.

This entire procedure can take around 6 months if all goes according to plan and everyone involved (landlord, solicitor, court, bailiff) responds promptly.

Recovery of the debt

Because of the costs involved, before we proceed with enforcement action, we have to assess the tenant’s financial position to ensure they have the means to repay the debt. We use trace agents and investigators to help us, alongside solicitors, in order to assess this. Recovery of the debt may involve instructing a debt collector and getting a charge on any assets or income.

What happens next?

Once we have possession of the property we will decide what needs to be done to prepare the property for marketing in order to find a new tenant. Typically, this may require cleaning, redecoration and some repairs, depending on any damage that might have been done. We will arrange for the deposit to be released (this will happen automatically if was ordered at the hearing or by agreement with the tenant as required by the TDS).

Clearly, good communication and diplomacy are essential from the outset in this type of situation which is difficult for both landlord and tenant. We always try to avoid going to court as the process can be lengthy and costs can quickly mount up.  Minimising the risk of rent arrears by thoroughly referencing potential tenants and having strict credit control procedures in place is by far the best option. If you are worried about a tenant who is behind with their rent and are uncertain as to what you should do, you can email us for advice or contact your nearest branch for more information.

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About the Author

Vidhur studied Management Sciences at Manchester University, focusing on accountancy, before going on to qualify as a chartered accountant. He began his career working in investment banking but after several years decided to join Benham and Reeves in 2003. Since then he has expanded the finance department, introducing a broader range of services to encompass all financial aspects of property investment, from collecting rent through to completing tax returns (or ATED returns for overseas companies). Read more about Vidhur Mehra here - Read full profile

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