Having a tenant fall behind with their rent payments and being left with no rental income is a landlord’s worst nightmare and it’s the most common reason for a tenant being evicted.

During the pandemic, many people’s finances were badly impacted, which led to temporary bans on evictions. Although many landlords managed to work with tenants who were struggling and come to an agreement over either temporarily reducing the rent or them moving out voluntarily, others found themselves with tenants who couldn’t pay and wouldn’t leave the property.

In 2019/20, just three per cent of private renters in England were in arrears (ONS data). However, according to research by the National Residential Landlords Association (NRLA), by the end of 2020, seven per cent of private tenants in England and Wales had built arrears due to the pandemic and 18% of those in arrears owed more than £1,000. A further survey of 1,391 NRLA member landlords found 60% had lost rental income due to the pandemic and 39% of those – that’s almost a quarter of all respondents – said their losses were continuing to increase.

Now that we’re in a cost of living crisis in the UK, many landlords are understandably getting more concerned about tenants falling behind with their rent, particularly as their own costs – such as mortgage interest rates, insurance and maintenance – are increasing. And with government proposals to scrap Section 21 evictions, as outlined in last year’s rental reform White Paper, and Scotland’s ruling that sheriff officers can’t enforce certain eviction orders until at least 1 April 2023 – which could be extended further – it’s vital that landlords know how to deal with rent arrears before they become a bigger problem.

How to prevent your tenant from falling into rent arrears

Sadly, you can never be 100% sure that your tenant won’t default on their rent – it’s just one of the risks you take on when you become a landlord.

But if your tenant ends up falling into serious arrears and you have to evict them, it can be costly, both in terms of time and money. Research has shown that it now takes an average of 51 weeks and £3,000 to bring a tenancy to an end via legal proceedings. And that doesn’t take into account the loss of rental income and also any consequences of getting behind on your buy to let mortgage payments.

The good news is, there are steps you can take to greatly reduce the chance of it happening, especially if you aren’t using a qualified agent who will do all the checks for you.

Reference potential tenants thoroughly, including carrying out a credit check

There are three key things that will help you make a decision on whether a tenant is likely to keep paying the rent:

A reference from their previous landlord, confirming whether the rent was always paid on time and in full

Asking the tenant to provide their most recent three months’ bank statements, so you can see their regular income and expenditure and judge whether the rent will be affordable for them

A credit check, which will look at the tenant’s address and credit history and uncover whether they have any county court judgements (CCJs) against them.

Note that you need the tenant’s permission in writing to carry out a credit check

Make it easy for tenants to pay

Provide the tenant with the necessary forms or information to set up a standing order and possibly even consider offering them a small discount or incentive for paying their rent into your account on time each month.

Ask for a guarantor, if appropriate

A guarantor is someone – usually a parent or guardian – who agrees to cover the financial obligations of the tenant if they’re not able to, giving you peace of mind that there’s a back-up. This is common practice with students, foreign nationals and first-time renters who may not have a previous landlord or credit history, and it allows you to accept potentially great tenants who may simply not be able to satisfy the financial aspect of the referencing process. Importantly, make sure you reference the guarantor just as you would a tenant.

Establish a good relationship with your tenant

If you treat your tenant well and maintain a good line of communication with them, they’re much more likely to be up front with you if they’re having any problems paying their rent. And the sooner you’re aware there’s a potential issue, the sooner you can do something about it.

Paul Shamplina, Founder of Landlord Action and Chief Commercial Officer of HFIS, says: “In these financially challenging times, and with the likely possibility of a recession which will hurt businesses and cool the job market, it’s more important than ever to communicate with your tenants. Find out what their plans and desires are – do they want to stay, or do they plan to move on? Keep checking in on your tenants to make sure they are coping and if necessary, work together with them to find a solution that works for you both.”

Keep your property in good condition and respond to any issues quickly

It’s a legal obligation for landlords to maintain their property in good condition throughout the tenancy and carry out repairs within a ‘reasonable’ timeframe. But the quicker you respond to your tenants and the sooner you can get any issues resolved, the more appreciative they’ll be and there shouldn’t be any reason for them to want to withhold rent payments.

Two other key things to have in place at the start of every tenancy:

Have a written tenancy agreement

You should have a formal written tenancy agreement that clearly outlines the terms of the tenancy and rights and responsibilities of both parties, including how much rent is to be paid and when. If you are a self-managing landlord, mydeposits guide, What to include in your tenancy agreement, contains lots of useful advice. Alternatively, you can use the Government’s free Model Tenancy Agreement or a tenancy agreement drafting service such as the one offered by Landlord Action. If you are an agent and would like support with tenancy agreements or any other legal matter, contact the letting agent helpline, HF Assist.

Make sure you have complied with your legal obligations

If you end up having to evict your tenant and you haven’t complied with certain legal obligations – such as providing the tenant with a copy of the current gas safety certificate and prescribed information relating to the protection of their deposit – any Section 21 notice is likely to be invalid. Read our guide, Legislation for landlords: everything you need to know, for more information on landlords’ legal obligations.

What to do if a tenant falls behind on their rent

Sometimes when tenants default on their rent it’s just an error or something that can be resolved fairly easily. They may have simply forgotten to transfer the money, or it could be a temporary cash flow problem, such as a client having delayed the payment of a large invoice.

On the other hand, it could be more serious. For example, they might be in longer-term financial difficulty or may even be deliberately withholding rent and wilfully not paying you.

The quicker you can find out what the problem is and whether it’s likely to become a bigger issue, the sooner you can decide on the right plan of action to make sure you minimise your losses – whether that’s helping the tenant get back on track or taking the decision to evict them.

Paul Shamplina believes that if a tenant is simply going through a tough time, it’s worth trying to help them. Many of us experience temporary financial problems at some point in our lives and by being understanding, rather than rushing ahead with an eviction, you could end up with a loyal tenant for many years to come.

At the other end of the spectrum, sadly there are cases where tenants think they can simply live rent free at the expense of their landlord. The advice from eviction specialists, Landlord Action, is that landlords who suspect a ‘professional bad tenant’ should seek expert help straight away.

Seven key steps to take when a tenant stops paying rent

1. Contact them straight away. The first step is a polite phone call to enquire if there is a problem, which should be followed up by an email as proof of communication.

2. Give them a couple of days to make payment. If the tenant claims payment has been sent, double-check with your own bank or ask the tenant for proof. Give them a few days’ grace to rectify the situation.

3. Agree a payment plan. If the tenant hasn’t been able to pay the full rent, for whatever reason, agree how much they’ll pay and by when, to make up what they owe. If you need help with this, you can contact the Property Redress Scheme’s Tenancy Mediation Service.

4. Consider reducing the rent. While you may not want to reduce the rent amount, your priority is to keep at least some rental income coming in so you can cover your outgoings. And if the tenant has been good so far and is looking after the property, it’s worth trying to keep hold of them.

5. Put it in writing. Write to the tenant confirming the payment plan you have agreed and what the next step will be if they fail to pay for a second time or secure read receipts if emailing.

6. Contact the guarantor. If there is a guarantor for the tenancy, contact them to explain the situation and advise them that they are now required to make the payment on the tenant’s behalf.

7. Seek legal advice. If the tenant or their guarantor fails to pay what they owe, send a final letter stating that if payment is not made within seven days, eviction proceedings will commence. Landlords should speak to a legal specialist.

How can mediation help with rent arrears?

When you’re trying to negotiate with a tenant who’s fallen into arrears, mediation can be a very helpful option. This is where you and your tenant liaise with a professional, independent third party to find a solution that works for both of you. If there’s any conflict, the mediator can help diffuse it and make sure the problem doesn’t escalate.

We’d suggest the best place to go is the government-authorised Property Redress Scheme, which offers a tenancy mediation service for landlords. There is a cost of £200 plus VAT – potentially more if the case is time-consuming – but it’s money well spent if it means you can avoid your tenant falling further into arrears or having to go to court.

“Our mediators bring common sense and expertise to resolve issues with rent arrears as quickly as possible. Once tenants realise we’re not just on the landlord’s side, they’re usually happy to work with us and we typically reach an agreement in 10 to 15 working days. While court cases can easily take up to a year and cost the landlord an average of £3,000 – not counting lost rent – we can reach agreements and often mend relationships between landlords and tenants in a matter of days.” – Mike Morgan, Legal Division Manager, Hamilton Fraser.