It’s any landlord’s worst nightmare. You rent out the property, all goes well and then… the tenant doesn’t pay rent. Don’t panic, we review in this article all of your options to resolve your situation.
Well, what should you do if your tenant doesn’t pay rent?
First, talk to the tenant. Maybe they just forgot, or maybe they paid into the wrong account by mistake, or maybe they had a family emergency and didn’t get round to it. Understand what happened. If they are facing financial difficulties, try to understand exactly what has happened and if it is a temporary or permanent issue. If this is the first time that your tenant doesn’t pay the rent and the issue can be resolved in a couple of days, try to be understanding, despite the annoyance, rather than letting the relationship sour right away.
Be pragmatic, but don’t be soft. Inform the tenant that you operate according to standard procedures and that if the debt is not repaid, you will initiate legal proceedings. Don’t allow it to become personal – it might be useful to say that your office has instructions to initiate proceedings automatically, for instance. If the tenant is facing financial difficulties, consider the context: have you had other issues (such as noise complaints or inappropriate maintenance) with this tenant before? And what is the market like? Are potential tenants knocking on your door or is the entire city in a downturn after a company’s headquarters shut down? Consider also whether the issue appears to be temporary (the tenant faced a family emergency, or was suddenly laid off but is on his way to finding a new job) or permanent (his business has gone bankrupt).
If you have not had major issues with the tenant before, the financial hardship seems temporary, and the market is not red-hot, it might make sense to negotiate a repayment agreement that allows the tenant to pay the rent over time rather than go through the stressful process of an eviction. In this case it is important that the agreement be signed by both sides, and that you document all interactions, in case things do not go as planned. If the matter is permanent and you must evict the tenant, be sure to respect tenancy laws, which can vary from country to country.
Sending written notices requesting payment and informing tenants of your intention to take legal action are generally accepted before initiating eviction proceedings. However, although it might seem unfair, measures such as paying unannounced visits to request payment, asking tenants to leave without proper eviction procedures, removing tenants’ property or simply locking them out of the building could all count as harassment and result in you owing them compensation.
If your tenant doesn’t pay rent, follow this procedure:
UK law only allows you to initiate possession procedures once rent is two months in arrears (one month hasn’t been paid and the other month is due). Until then, you can send the tenant and his guarantor letters by mail requesting repayment and informing them of your intention to take legal action.
After two months you are entitled to serve your tenant a section 8 notice (which must be in the prescribed form). This is a formal request for payment in 14 days.
If there still is no response, you may then file a possession claim in court.
Issue a signed non-payment termination notice in writing, delivered in person, by post or fax, including all of the following information: the grounds for termination, the address of the property, the date by which the tenant must vacate the premises (at least 14 days from the receipt of the letter, which, if sent by post must assume 4 business days for delivery) and a statement indicating that the tenancy will not end if the tenant pays the arrears or signs a repayment agreement.
If the tenant does not evict the premises within the prescribed time-period, file a claim in court to have them evicted.
Exact tenant laws vary from state to state in the US. As an example, in New York:
All formal notices must be served to the tenant either by a professional service, or by an independent third party. As a landlord, you are not allowed to serve them yourself. They can be served directly, by substitution (handed to someone who lives with the tenant), or conspicuously (e.g. on the door).
Once rent is late, issue a Rent Demand – a document informing the tenant of the months and amounts that are owed.
Start the eviction proceedings three days after the tenant is served.
Tenant laws vary from country to country within the EU.
For instance, in Spain:
You must send a registered letter requesting payment, which can be arranged by a lawyer.
If after a reasonable period of time (2 weeks is sufficient), payment still has not been received, you may start eviction proceedings in court, which unfortunately can take as long as 10 to 18 months.
On the other hand, in Germany, legal proceedings can begin after two months, as in the UK.
How to avoid defaults if my tenant doesn’t pay rent
Of course, tenant defaults and evictions can be stressful, drawn-out and expensive, and so are best avoided. A few tips for avoiding them:
Carry out background checks when renting the property – consult credit ratings and ask for references. Apart from the formal background checks, talk to the tenants to get a feel for their backgrounds and whether they seem trustworthy.
Require safety deposits and/or guarantors according to the standard of the country. Do not be tempted by offers from tenants who claim to be interested but have an excuse as to why they cannot provide a guarantor or the standard deposit.
Consider buying insurance against tenant defaults, especially if you are buying the property with a mortgage, or if a default would cause you financial hardship. Even if you could stand the strain of a default and choose not to insure, at the very least, request quotations for this insurance to get a feel for how much of your rental income you should actually think of as a provision against default.
When choosing a market in which to invest, consider how common tenant defaults are in that market, how protective of tenants the local laws are and how long eviction procedures are expected to take. Assume that at some moment in time you will face a non-payment issue, and bear the associated expenses and loss of income in mind when considering the returns on your investment.
Although every experienced landlord has had to face unpleasant situations such as these at least once, if you take sufficient care when accepting tenants and follow the correct legal procedures, you shouldn’t face excessive problems. Good luck!