"Given the economic climate, a commitment to pay back over time will see many good tenants retain their rental contracts rather than be forced out."
Tenants, if you can’t pay your rent, speak up quickly, all experts advise. The first thing you need to do is communicate with the owner and try to make a plan with him or her, says Herschel Jawitz, chief executive of Jawitz Properties.
“The problem is many owners rely on the rental to pay their mortgage so options are limited in terms of helping a tenant who can’t pay. “The worst thing a tenant can do is to simply terminate the lease and move out. This may put the owner in a position to report the tenant to one of the credit agencies that owners and agents use to assess the quality of a tenant, which will impact on the tenant’s ability to rent in the future,” warns Jawitz.
Andrew Schaefer, managing director of national property management company Trafalgar agrees, tenants should “quickly approach their letting agent or owner (in the event the owner is self-managing) to discuss payment issues”.
“Owners are generally amenable to assisting when approached early and honestly, especially in the current difficult market conditions with low rental increases, higher vacancies, difficulties finding qualifying tenants and escalating rental arrears.
“The earlier the approach, the lower the arrears, the more options and flexibility are available to make a mutually satisfactory plan. An acknowledgement of debt (AoD), which is an agreement that allows the tenant to pay off the arrears without detracting from his or her liability for rent that is due; early notice; lower rental increase; and reducing services costs are all considerations to assist with cash flow and affordability challenges.”
Ben Shaw, chief executive of HouseMe, an online rental disruptor, says “providing an update sooner rather than later when you are not able to meet you financial obligations, or when you will pay a bit late, is the best option”.
“This could help prevent additional charges, but also prevents animosity building in your relationship. Given the economic climate, a commitment to pay back over time will see many good tenants retain their rental contracts rather than be forced out. Landlords do realise how tough it is out there, and don’t want to go through the hassle of finding another good tenant.”
Early intervention protects your investment against defaulters
Just as timing is everything for tenants, so is it for landlords. If a tenant is not paying rent, intervene early, advises Andrew Schaefer, managing director of national property management company Trafalgar.
“Negotiate a decisive solution, including the option of vacating the unit before arrears become unaffordable to settle. Don’t tolerate a broken promise to pay. Give notice for the unit to be vacated and stick to that.
“A legal eviction should be the last resort and only necessary in exceptional cases as it is hugely expensive, delayed and, in general, an unsatisfactory option.”
Shaefer urges landlords to always try to solve the issue within the deposit rental cover period (for example, one month if the deposit covers one month’s rental).
Ensure the deposit covers utility charges, which are generally raised monthly in arrears. Ben Shaw, chief executive of HouseMe, an online rental disruptor, says landlords do understand there are certain things over which tenants have no control.
He says “a job loss, an unexpected medical bill or family emergency are all unfortunate realities of life”. “Should a tenant stop paying, get in touch and don’t assume the worst.
Most times you will be able to come to a fair repayment plan as good tenants want to stay in good properties. “The best cash flow protection would, of course, be a rental guarantee, which could cover your lost or late rental while you negotiate with your tenant.”
HouseME’s Rental Guarantee has been designed for this. For only 1% of the rental price, you can expect cover for up to three month’s rent if the tenant defaults.
“In a tough market for consumers, landlords also struggle. Late payment of rental causes them to miss bond payments, and vacancies prevent bonds from being serviced at all. Key to resolving these concerns is fair pricing. At the right price there is always demand, and rent remains affordable,” says Shaw.
How not to deal with defaulters
An eviction is a lengthy process and unsatisfactory. However, if you have tried to accommodate a defaulting tenant, tried to come to a compromise and the tenant still does not make payment on a new agreed-upon date, you can:
1 Send the tenant a written breach of contract letter with your intention to report the payment default to credit bureaux should the account not be settled within the seven-day period. This letter is usually sent by a registered debt collector.
2 You, or a debt collector, are entitled to register a default record against the tenant 20 business days after a letter of demand has been sent.
3 If the tenant fails to make payment within seven days, you can send a written notice to cancel the lease agreement and to demand the tenant immediately vacate the property.
4 If the tenant still fails to vacate the property or disputes the cancellation of the lease agreement, you will have no choice but to call in legal assistance and to proceed with an eviction order