In this second of two articles, residential tenancy specialist, Mike Hansom, considers how landlords should approach arrears of rent. To discuss any aspect of landlord and tenant law or procedure, please email Mike or call him on 01225 462871.
If your tenants are failing to pay you their rent, how do you know if this is genuinely due to the coronavirus pandemic, and how should you approach the problem?
If you have not done so already, we strongly recommend that you take steps to address the situation immediately. It’s surprising how many landlords delay and, as a rule of thumb, the greater the arrears the less chance of you seeing payment.
Beware the changes made by the Coronavirus Act
The Coronavirus Act (“CA”) applies to England and Wales and has modified the law by increasing the notice period to 3 months for both Section 21 notices (which usually require at least 2 months’ notice) and Section 8 notices (which usually require 14 days’ notice where the tenant is in rent arrears).
If you plan to serve either of these Notices from 26 March 2020 onwards, you need to have given the tenant 3 months’ notice before issuing proceedings. If you served them before this date, you can still issue court proceedings for a possession order, but the court will not process your claim since all proceedings have been put on hold (or ‘stayed’).
These new provisions came into force on 26 March 2020 and continue until 23 August 2020, but watch out for further changes. The CA gives the Secretary of State and Welsh Ministers the power to increase the notice period up to a maximum of 6 months and to extend the end date of the legislation.
Also beware that the government has issued new prescribed forms incorporating the modifications made by the Act, including a new Form 6a for section 21 notices served in England and new Form 3 for section 8 notices. They have also published separate Technical Guidance on Eviction Notices, explaining the new requirements.
The “How to Rent” booklet has yet to be updated, but that is expected imminently, so do check there is not a new version before providing a copy to your tenants.
First step – talk
Make arrangements to speak your tenant. Remember to be courteous and understanding.
Anticipate their response
It is reasonable to request that your tenants show you documents confirming the reason they are unable to pay, and provide their estimated timescale for returning to work/making payment. Most tenants will be keen to offer a solution, whether it’s a rent holiday, a rent reduction, payment of arrears by instalments or a combination of these.
You will need to make a judgement call on how likely they are to be able to comply with any agreement. Your tenant may be offering a solution which they cannot afford. Ultimately, it’s not in the interest of you or your tenant to be unrealistic. Ask them to complete a financial means form, setting out their income and outgoings, and request evidence in support. On the basis of that information, it should be clear whether they have the ability to honour any suggested agreement.
Subject to their current means, if they have otherwise been a good tenant, bear in mind that the costs associated with evicting them, including further loss of rent until the property is re-tenanted, may mean that coming to an agreement whereby they can stay is a good, commercial decision.
If an agreement is possible, it should be recorded in writing and signed by all parties. This should be drafted carefully, and state how the agreement will be affected if the tenant does not keep to the terms.
However, should you conclude that the situation is only likely to get worse, you will need to prepare to commence possession proceedings, although if you do so they will be stayed until the moratorium ends, currently 23 August 2020. In our earlier article, we have highlighted the delays to be expected as a result of the pandemic.
What about using the deposit?
It is possible that your tenant will suggest using the deposit to reduce the rent arrears.
In the normal course of events, when your tenant does vacate, you may need to make deductions for damage to the property and/or rent arrears which have accrued to that time. You are under no obligation to apply this to rent arrears during the tenancy. Accordingly, if the tenancy is likely to be ongoing, it is not advisable to use the deposit towards payment of rent arrears.
Does the tenant have a guarantor?
If your tenant has fallen into arrears but has a guarantor, you should contact them as soon as possible. Knowing they are ‘on the hook’, hopefully they will work with the tenant to resolve the situation quickly. Failing that, you should be able to pursue the guarantor for the arrears by bringing a debt claim in the county court. You should check the wording of the guarantor’s agreement as it may limit the period that the guarantor is liable. For example is the guarantor limited only during the initial fixed term of the tenancy or does this extend to any subsequent periodic tenancy?
Should you bring a debt claim in the County Court?
As you cannot evict the tenant at present, is it worth claiming the arrears as a debt? If successful, you would obtain a County Court Judgment (“CCJ”) for the arrears. Once you have a CCJ against your tenant (and the guarantor if there is one) you can consider methods of enforcement.
But, if there is no guarantor and the tenant is not paying the rent now, how likely will they be able to pay back the arrears in the future? For some tenants the prospect of having a CCJ registered against them could make sure they prioritise rent payments appropriately, but this will not be worthwhile in every case.
Does your tenant have a defence or counterclaim?
Before you bring legal action against your tenant it is advisable that you check whether there could be any nasty surprises waiting for you. Many problems arise from inadvertent failures to comply with landlords’ statutory obligations. Slip-ups can result in your tenant having a defence to a possession claim, which would result in your claim for possession failing. Alternatively, or in addition, your tenant may have a counterclaim against you. Common examples are set out below:
- Did you protect the deposit and serve the Prescribed Information within 30 days of receipt?
- Does the property have a valid Gas Safety Certificate and EPC, and did you provide copies to the tenant?
- Have you complied with the Tenant Fees Act 2019? These obligations relate to the fees you can charge and the maximum amount of the deposit (5 weeks’ rent). Whether your tenancy is affected depends on when the tenancy was granted.
- If the property is an HMO, is all applicable licensing in place?
- Has the tenant complained about the condition of the property?
Failure to comply can cause several months of unwelcome delays to the eviction process. As we can expect long court delays after the Covid-19 restrictions are lifted, it is advisable to check now whether your legal claim for possession has the best chance of success. If you identify any weaknesses in your case there may be time to address them now.