Part of property ownership is the effective control of rent arrears. Many landlords take a soft approach to rent arrears and often emotion or a lack of knowledge of what to do results in unnecessary losses. We all know that unless arrears are actioned promptly that bonds will never cover all costs so the proactive control of rent arrears is essential for all owners. This article aims to provide landlords with a systematic process to complete when faced with rent arrears. This process has been developed over 20 years of professional property management and is essential to limit losses and reduce instances of arrears.
In the old days tenants were given the benefit of the doubt and property managers were a little less strict. If a promise was made to remedy in a day or two or a double payment was made next week our Landlords accepted this and property managers recorded the arrangements. This was a product of a time when Landlords and property managers let emotion in to the equation and gave tenants a bit more breathing space. However now property investment is main stream and every cent counts for many investors! The following process is designed to protect the Landlord from the worst case scenario and steps are taken just in case tenants are lying or have no intention to pay rents (this happens more than you would think).
Step 1 – Day 1: A phone call to tenants to advise on the missed payment and that a written notice will be issued immediately (this notice is gentle rent arrears letter but includes all required info for a 10 day notice eg property address, tenants name, date, arrears amount and clause giving 10 working days to remedy the breach in the agreement). If tenants confirm that they will pay the rent in a few days or can they pay double next week then property owners must advise tenants “it is unacceptable to not pay the rent or pay it late” and that action may be taken against them to terminate the tenancy if they don’t remedy the breach ASAP.
Step 2 – Day 3: Phone call or text message
Step 3 – Day 5: A 2nd letter more serious advising that within 24 hours an application to the Tenancy Tribunal may be made for termination of the tenancy.
Step 4 – Day 7 or 8: This is the day that the rent will now fall two weeks behind if rents not paid. Apply to the Tenancy Tribunal, ph call/text & written notice to tenant that an application has been made.
Note: The best policy is that applications to the Tribunal for the recovery of rent arrears should be made on or before the tenant gets two weeks in arrears eg on or before day 7 or 8. DO NOT wait for 10 day notices to expire as bonds will NEVER cover rents by the time you make an application or get to the Tenancy Tribunal (eg. You are planning for worst case scenario). If you make an application before the 10 day notice expires then Tenancy Services will schedule your mediation for the earliest available spot after the 10 days has expired. If a tenant remedies the missed payment you can always withdraw an application. The reason you don’t make an application on day 4, 5 or 6 is that most breaches are remedied within this timeframe and even if you did make an application to the Tribunal on these days you would not get a hearing date any earlier than if you made an application later on day 7 or 8 (as the mediation will still be scheduled after the expiry of a 10 working day letter). It is also important to understand that tenants are not sent letters or called every day as this can be seen as harassment and is unnecessary as it may only antagonise tenants.
If notices go unanswered then you will need to follow up the notice with an application to the Tenancy Tribunal. When making an application to the Tribunal a landlord should always plan for worse case scenario. Don’t just ask for the recovery of rent arrears and assume that tenants will remedy once you have been to court. In your application you need to ask for the ‘termination of the tenancy, payment of rent arrears, and bond refund’. If mediation fails and you find your self in the Tribunal then they only have the power to award you what you have asked for in the original written application.
If you experience arrears problems on an ongoing basis is also worth considering a three strikes and you’re out policy. Although most landlords won’t rent to tenants unless references are obtained, and tribunal database and credit checks completed, sometimes tenants who pass these checks still have arrears problems. If you have to take tenants to mediation or the Tribunal it is usually worth mediating once or twice. However, if a tenant is taken to the tribunal a third time then we recommend not negotiating and termination is requested with the argument that there is clearly a history of ongoing rent problems. Especially since the owner is not only fitting the bill for each application fee but also foregoing the many hours needed to complete a Tribunal hearing & mediation.
In a world where you may wait weeks to get in to the Tribunal and bonds hardly ever cover everything it is important for property managers and Landlords to take action ASAP in order to limit any potential losses. Also, if Landlords are push over’s in the first instance bad tenants will repeat the breaches knowing they can get away with it so a hard line policy is essential. If you take the above action each time then you reduce the likelihood of repeat offending as tenants know they cant get away with it.
All of the above said, hard line rent arrears policies are essential but I’m sure that you will all agree even more important is a strict TENANT SELECTION PROCESS which will reduce the likelihood of problems from day 1.