There you are, sat at your computer, calmly looking at your banking records online.
But the numbers you’re looking at don’t seem right, surely?
You read and re-read the data, and slowly a sweat builds on your brow, and the butterflies start flittering in your belly.
Why? Your tenant hasn’t paid their rent. And it’s up to you to sort it out. (Gulp.)
What NOT to do when your tenant defaults on their rent
The action that most landlords and property managers will take will be to send the tenant a 14-day notice to remedy, perhaps a number of letters and make a phone call. And then they sit back and relax, refreshing their online banking data daily till they see the payment come through (or not). And if the payment doesn’t come through, off to Tenancy Tribunal they go, perhaps in five or six weeks’ time.
Sure, the 14-day notice to remedy is a vital piece of communication that’s required for legal reasons. But that alone isn’t enough if you’re serious about getting hold of that outstanding rent money, you actually have to put your debt collector’s hat on. Here’s how we deal with late rent payments at Bridgman Property Management. (And you may want to keep this handy, as we’ve never had a single rent default in our 25 years of experience in property management.)
The Bridgman Property Management guide to managing late rent payments
1. Send the 14-day notice to the tenant
As already mentioned, it’s an important legal item. One of the most important aspects of issuing the fourteen-day notice is the timing. If you have a tenant who has defaulted on rent a number of times, or they have generally been problematic, then issue the fourteen-day notice immediately. However, that scenario is completely different to the tenant you have built up a good working relationship with and have trust with. An A1 tenant is likely to resolve any problems immediately, and it may be counterproductive to issue them with a fourteen-day notice without first having contact and a face-to-face meeting. Where you have a very good relationship and trust with the tenant, then working through items 2 and 3 (see below) first would probably bring dividends. So, in summary the issuing of the fourteen-day notice should be on a sliding scale (e.g. 0 to 48 hours) and depends whether you have an A1 tenant or a problematic tenancy. This is a judgement call for the property owner or property manager to make.
2. Contact the tenant within 24 hours
Phone the tenant, and if required, arrange a meeting for collecting the outstanding rent. From experience, we’ve learnt that when a tenant knows the landlord will visit them to collect the rent, then payment problems tend not to arise. We’ve also learnt that the most valuable period for resolving rent default and damage problems is in the first few hours and days following the breach. So be sure to put that valuable time to good use.
3. Visit the tenant as agreed
A face-to-face meeting will have the highest probability of success over any other form of communication. You can find more tips on how to handle these face-to-face meetings here. Remember at this stage, your tenant could be prioritising missed payments to a number of suppliers. They may have defaulted on instalment payments for car hire purchase and white ware as well as rent! So you’ve got a bit of competition, because those suppliers are likely to be contacting your tenant for payment. It is very important that you’re elevated to Number One priority in your tenant’s eyes. By having face-to-face meetings with your tenant, you are likely to be the Number One payment priority on their list.
4. Follow up with written correspondence
Once you’ve had the face-to-face meeting, follow up in writing and include everything that’s been agreed upon. This is important for your paper trail.
5. Monitor daily the actions the tenant has agreed to
This may typically be payment of 50% of outstanding rent tomorrow and the balance in five days. If this payment programme is broken in any way, then arrange another meeting with the tenant so payments can be brought back on track. Essentially, points 2 to 5 need to be worked through and repeated until full payment of outstanding rent has been made. An immediate recovery to the normal rent payment cycle is a lot more likely in the first week compared with week three or week five. A full payment with the tenant being five weeks behind in rent is very unlikely: in this situation, the tenant would need to commit to a payment plan over a number of years. This would be a very unsatisfactory result for the property owner and is simply poor tenant management.
6. Use all available payment solutions to assist you
Whether you’re collecting late rent or money for damage, offer all possible payment solutions, including credit cards. If you don’t already have credit card facilities, the company ‘Rent on Time’ is a good option, as they have no set-up costs and no on-going fees for landlords: their fees are paid by the tenant.
7. Communicate daily with the tenant during the 14-day period
In a corporate working environment, a manager requests regular updates from staff on the progress of outstanding issues. These updates will often be face-to-face, and followed up with written progress reporting.
You should incorporate the same management practices into property management, with you being the manager. By being proactive and providing strong management, a high percentage of problems will be resolved before the 14-day period expires.
It is important that you communicate the consequences of defaulting on rent and then the requirement for a tribunal hearing. The tenant needs to fully understand that a default will affect their credit record and their future ability to secure finance and rental accommodation. In addition, a record of the tribunal decision will be available online for future property managers and landlords to view. However, the biggest tenant motivator is always going to be their immediate real problem (i.e. having a face-to-face communication with you, the owner/property manager) as against the distant problem of a tribunal hearing in six or seven weeks’ time.
8. Remember your trump card
Use the good working relationship you’ve built up with the tenant to your advantage to help you achieve a good result. The good working relationship is a little bit like an insurance policy against future tenant problems. There is no guarantee that the insurance policy will pay out every time, but your risk is heavily reduced compared with having no insurance. If a debt collector were to be appointed following the issue of a tribunal money order, the debt collector would have no previous working relationship with the defaulting tenant. This is one disadvantage of having to resort to external parties for resolving your problems. They have not had the same opportunity to build rapport and a respectful relationship as you have.
They may, for example, contact the tenant in week seven (following the tribunal decision in week six). The situation is essentially unrecoverable at that point as the tenant will be seven weeks behind in rent and will need to enter into a medium- to long-term repayment plan. The probability at this stage of receiving an immediate full payment for seven weeks outstanding rent is very low indeed.
If you follow these steps, there is a good chance you will be able to recoup the missed rent in full, and without having to go to the Tenancy Tribunal. The key is to use the 14 days effectively, and to be a strong and decisive manager. Simply sending the tenant a letter (or series of letters and reminders) and gazing at your online banking account balance will not have the same impact.
What if you have regular late payments? What should you do? Find out in the next article in this series.
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