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Dealing with difficult tenants: Your 9-step troubleshooting guide

1st September 2014
Dealing with difficult tenants: Your 9-step troubleshooting guide.

Dealing with difficult tenants: Your 9-step troubleshooting guide.

Dealing with difficult tenants can be very stressful for property managers and for investors who are self-managing their properties.

At Bridgman Property Management, we’ve dealt with many scenarios over the years – and have heard some real horror stories from property management colleagues.

Here are our 9 tips to help you when dealing with difficult tenants…

1. You need to be very confident when dealing with difficult tenants

When you’re dealing with difficult tenants, you need to portray that you are confident and in control… this may take practice.

Remember, when you’re negotiating with tenants, you’re presenting them with your solution. If you are calm and confident, the tenant is more likely to be positive towards you. Do not appear nervous or lacking in confidence when addressing tenant problems: you need to overcome any tenant-phobia you may have.

Your communication also needs to be supportive of the tenant and their problem. For example: “That’s an excellent solution, Bob. I do need you to be back on track with rent payments by this Friday. As discussed, I’ll meet you tomorrow at your office at 12 noon so I can collect your outstanding rent.”

The key to successful tenant communication is to be very clear and specific with what you’re saying. And to say it calmly and confidently.

2. Be aware that a Tenancy Tribunal hearing is not the solution for dealing with difficult tenants!

It may be a surprise to many property owners but a 14-day notice and a Tribunal hearing is generally not going to solve your tenancy problems.

The Tribunal hearing is purely like the mechanics and panel beaters workshop that you take your car to: they may repair your car, but they will not give advice on driving safety! In property management, you also need to learn the skills for yourself.

A Tenancy Tribunal hearing is not the answer; it is actually the outcome of poor property management, or signing up the wrong tenant. Repeated Tribunal hearings are simply highlighting a tenant management problem, and the Tribunal will not find solutions for those problems.

3. Stay focused on your goal: looking after the asset

It’s vital that you understand that your job is to look after the property owner’s asset: you’re essentially an asset manager. Tenants may come and go, but the asset remains. Therefore your decisions need to be in the asset’s best interests, and nothing else. Your goal should be to make it desirable for the property investor to hold the asset for the long term.

So if you end up with tenants that don’t meet your requirements, then move them on. The tenant profile should fit with the property owner’s long-term investment plan. There is no point having a long-term investment plan if you only set out to have short-term tenants.

4. How to deal with damaged or untidy premises

The first time a serious problem occurs with the tenancy due to the premises being damaged or untidy, you need to take immediate action:

  • You need to let the tenant know that the current living condition is unacceptable, and explain why it’s unacceptable, i.e. they are contravening the terms of their tenancy.
  • Tell the tenant that you will be undertaking monthly property inspections until the premises are in a clean and tidy state and the damage is repaired.
  • Explain that the monthly property inspections are inconvenient to both parties, but they will continue until the problem has been rectified.
  • Point out that once they have got the property back to the state it was in at the start of the tenancy, that you will be completing inspections every 2 months. Once you are satisfied that the tenant has turned the corner and is back on track to being the good tenant you ‘thought’ you signed up – then and only then can you consider reverting to your normal inspection regime, i.e. 3 or 4 monthly.

The inspection regime always needs to be on a sliding scale that is proportional to the severity of the problem. There is no point in investing exactly the same time for property inspections for your excellent tenants as you do for your bad tenants. Poor tenants require a lot more management time and as the landlord or property manager you should recognise that.

Three- or four-monthly property inspections were only ever intended for tenancies that are operating smoothly. The Residential Tenancies Act allows property inspections every 28 days, and that was put into law for a reason!

5. Don’t give the tenant 7 weeks of “free” credit

When a tenant is in financial difficulty, they will be prioritising payment options between you, the landlord, and other creditors, e.g. hire purchase on car, washing machine, dryer a and TV.

The tenant knows that they may be able to get 7 weeks of free credit from the landlord. This is from defaulting on the rent, right up to the day of the Tenancy Tribunal hearing.

As mentioned in point #2, the Tenancy Tribunal hearing isn’t a tool that’s helpful to you (or the property owner’s asset). Instead, you need to take immediate action yourself, rather than waiting for the Tribunal hearing.

6. How to deal with rent arrears or a late rent payment

If a tenant is regularly defaulting on rent, then you need to introduce manual rent collections.

You should explain that the Manual Rent Collection is being put in place to ensure that rent is paid on time, and once this is working well you may be able to look at bank Automatic Payments again.

Manual rent collection is simply setting a day and time each week for meeting with the tenant to receive the rent (this must be a cash payment). Saturday morning is a very good time for this!

You can read more about manual rent collection here.

This manual rent collection technique is a very powerful way to resolve a problem: it’s one reason why Bridgman Property Management hasn’t had rent defaults in more than 25 years.

Manual rent collection is also a very good test to see if the tenant is willing to turn the tenancy around. The test may reveal that the tenant is not of such a good character. In some situations, the most positive outcome is that the tenant chooses to move on.

Remember, you need to stay focused on your goal of protecting the property owner’s asset, and ensuring that the asset provides a reliable income stream.

7. Use appropriate communication that’s aligned to the severity of the problem

When you’re dealing with difficult tenants, you need to use communication that’s aligned to the severity of the problem you’re dealing with. Moreover, the tone and nature of the communication may evolve over the course of the tenancy.

At the outset of a tenancy, you are aiming to appoint an A1 tenant and then establish a good working relationship with that tenant.

The next step in the tenancy is the tenancy application stage, and then the good working relationship you have established is your best insurance against any tenant problem ever arising! It is in fact an asset you have created, i.e. the value of that tenancy.

Therefore you need to think very carefully about the timing and tone of any communication you issue, when a tenancy problem arises.

At Bridgman Property Management we believe that a large number of Tribunal hearings could have been avoided if a different mix of communication had been used from the beginning.

When there is a tenant problem, you are reliant on the tenant working with you and taking responsibility for their problem. Are you going to get the correct reaction from your tenant if you issue a 14-day notice without speaking and meeting with the tenant first?

If you are issuing legal communications ‘immediately’ every time a tenant problem arises, you are basically admitting you have a poor quality tenancy in place… And whose fault is that?!

8. Learn from experience

Every landlord/property manager makes mistakes. The key is to learn from your mistakes.

The magician who pulls an egg out of a black silk bag has practiced many thousands of times to get to the point where the trick works seamlessly. He has experienced many occasions where he ended up with egg on his hands, but he has learnt from these mistakes.

Don’t keep getting egg on your hands year after year; the goal is to get results in your favour.

With experience, you will be able to enter a dispute with a tenant and know what they will say before they say it!

9. Be prepared to move the tenant on

There comes a time when the amount of time you are investing in managing a tenant isn’t cost effective.

If you have repeated problems with rent defaults, cleanliness of the premises, etc. then you need to bring the problems to an end. Your sanity and investment is not going to benefit from the current tenancy.

Instead, understand the mistake you have made by appointing that tenant and look forward to easier management in the future.

Firstly, you do need to have a Periodic Tenancy so you can issue a 90 days’ notice to the tenant to vacate.
It is the only remedy a landlord has to bring the tenancy to an end without having to give any reason. Once the notice is given to the tenant they have to vacate within the 90- day period, and they also have to provide the landlord with 21 days’ notice of their intended departure date.

Many landlords are concerned that giving 90 days’ notice will convert to 90 days of lost rent. That’s not necessarily the case: we have always found that tenants move out far in advance of the 90-day deadline.

If there has been a repeated problem with rent payments you should be collecting the rent manually until the tenant departs. Under this regime the tenant’s motivation will be to locate another property, and the existing property will be low on their priority list. Therefore you should manage the tenancy closely during this period. It is a worthwhile investment of your time as you are bringing this problem to an end.

During this period it may be wise to increase your inspection frequency to once every 28 days (as allowed under the Residential Tenancies Act). The heightened presence on site is valuable to monitor the tenancy.

You can also enter the land and facilities without giving notice – this would be wise on a weekly basis, just to keep a tab on things.

By close management of the ‘end’ of the tenancy you can close things off quite quickly and seamlessly. Then you can focus your efforts on finding an A1 tenant, so you can avoid the whole scenario of dealing with difficult tenants.

Summary

  1. You need to be very confident when dealing with difficult tenants.
  2. Be aware that a Tenancy Tribunal hearing is not the solution for dealing with difficult tenants.
  3.  Stay focused on your goal: looking after the asset.
  4. Deal with damaged or untidy premises immediately, and undertake property inspections every 28 days, if needed.
  5. Don’t give the tenant 7 weeks of “free” credit when they are late paying their rent.
  6. Instigate Manual Rent Collection if tenants are late paying the rent.
  7. Use communication that’s aligned to the severity of the problem you’re dealing with.
  8. Learn from experience.
  9. Be prepared to move the tenant on.

 


 

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