• Your Guide to Rent Arrears

    Rental arrears are a common and unwelcome reality for many landlords and tenants alike. As a landlord, you have your own costs that must be dealt with, and any delay in receiving the rent that you are due may greatly damage your ability to pay your mortgage and other expenses such as your council tax bills or insurance premiums.

    Indeed, you may depend heavily on rental income to pay your most basic expenses. But even if you are in a secure enough financial position to take the hit of a tenant of yours being a month or two in arrears, it’s still important to know how to deal with this frequent problem affecting landlords.
    After all, if you do nothing to address the issue of non-payment by a tenant, the problem can easily become worse. Here at CIA Insurance, we therefore decided to compile a complete guide to the action that you can take against rental arrears to restore a measure of financial security and stability. This guide has been written for the benefit of both residential and commercial landlords.

    What is classed as a tenant in arrears?

    While rent is technically due on the morning of the day it is specified to be due, the tenant is not legally considered to be in arrears unless they have failed to pay by midnight of that day. When payments are made via bank transfer, you can expect a delay of several days, allowing for bank payment delays, weekends and bank holidays.

    The differences between commercial and domestic arrears

    The legal processes for dealing with commercial and domestic arrears are certainly not the same, although the levels of protection afforded to the tenant are closer in similarity to what they once were.

    New regulations under the banner of Commercial Rent Arrears Recovery (CRAR) have been in force since April 2014, and enable a landlord of commercial premises to recover rental arrears by taking control of and selling the tenant’s goods. This replaces the previous law of distress for both new and existing leases.

    While there is a trend over the years of the law for the recovery of commercial tenants’ rental arrears becoming increasingly stacked against the landlord and in favour of the tenant, as a commercial landlord, you still generally have much more control over your property than residential landlords.

    This can surely be universally agreed to be a good thing, given that the residential landlord is not merely providing the tenant with a product or service, but their home. It’s why, if a residential landlord wishes to send a bailiff into the property to remove and sell goods to pay outstanding rent, they are required to sue the tenant, win the case and then instruct a court-appointed bailiff or privately certified bailiff through the high court.

    Even if the residential landlord accomplishes all of the above, the tenant can simply refuse access to the bailiff, who has little option to take any action other than leaving or returning at another time. Even if the tenant does provide access, the bailiff is greatly restricted in terms of what they can and cannot take.

    Until recently, the legal situation for commercial landlords was drastically different. The law of distraint simply required the commercial landlord to complete and send a one-page form to the local bailiff, or even take responsibility themselves for the recovery of goods in lieu of unpaid rents.

    Not only was the bailiff able to simply take the landlord’s word as fact that their tenant was indeed in rental arrears, but this also did not even need to be for ‘pure rent’. The bailiff would not give any prior warning to the tenant of their arrival, could remove goods to the stated value and could even use force.

    By contrast, the current CRAR law means that commercial tenants must now be given a prior written warning in the form of a controlled goods order. Such advance notice gives the tenant time to conceal goods or even completely shut up shop, a technical breach of the notice that the landlord can nonetheless do very little to enforce.

    Nor is it possible to use CRAR for anything other than ‘pure rent’, and a written tenancy agreement or lease must be in place. It means that a commercial tenant who is short of funds could devote their energies to paying their rent while leaving their service charge or insurance unpaid, and not have to worry about the threat of a bailiff, even if they owe a significant amount of debt.

    How can you recover rent arrears?

    While there is obviously a legal side to the debt recovery process for rental arrears – and tenants are certainly legally required to pay their rent – there are steps that you can take to recover rental arrears from an early stage that don’t necessitate you turning immediately to the courts.

    Every tenancy is different, as are the circumstances of each tenant who falls into arrears. One of the most important things that you can do to help to mitigate and recover rental arrears is to simply maintain a good working relationship with the tenant. This helps to ensure that even before your tenant formally falls into arrears, they are confident enough to bring up any issues with you.

    When the tenant does begin to incur arrears, it is important to strike the right balance between communicating the seriousness with which you take the matter of the debt being settled, and showing a degree of practical compassion for your tenant’s circumstances.

    It is crucial to talk to the tenant as early as possible to establish what looming or developing problems may be compromising their ability to pay their rent on time. With arrears typically occurring due to a loss of income for the tenant, you may be able to help your tenant to assess their options, which may include enquiring about Government housing support.

    If the problem is likely to be short-term – lasting only one or two months – you may wish to discuss a repayment plan with the tenant, perhaps temporarily adjusting the rent or agreeing to spread the repayment of any accrued debt over a several-month period.

    Alternatively, the circumstances giving rise to rental arrears may look likely to be long-term. This will require you to discuss with the tenant whether they can afford to continue living in the property, and whether they wish to do so. Is it possible – and in both of your interests – to agree to an adjusted rent while you wait for your tenant’s finances to improve, or is the tenancy so likely to end as a result of the arrears, that it would be best to end the tenancy early?

    Landlords’ legal responsibilities and rights

    Ideally, you will probably want to avoid legal proceedings, given that they can not only often take a long time, but also be very expensive, although there is the option to apply to reclaim some of your costs with a money judgement.

    The good news is that with tenants being legally required to pay their rent, it is possible to terminate their tenancy if they consistently fail to pay. For greater clarity as to rent arrears landlords’ rights, exactly what you can do and when you can do it, you will need to consult the written tenancy agreement that was agreed with your tenant before the tenancy commenced.

    The County Court

    If you simply wish to claim the rental arrears that are owed to you rather than regain possession of the property, you have the option of making a claim under the terms of your tenancy agreement for money that the tenant owes to you, using the County Court’s small claims procedure. This is also known as a ‘money judgement’.
    This is a court order that forces a debtor to pay any money they owe you as a creditor. To apply for a money judgement, you need to be able to prove that you are owed money by the tenant, which can be done with a contract showing the amount of outstanding rent and when it is due.

    It is typically your tenancy agreement that will constitute the contract, with this able to be either written or verbal, although it is much more difficult to prove a verbal contract than a written one. A record of rent payments or a rent book should also be kept to prove that the tenant is in arrears.

    Once the court has issued a money judgement, there are various ways it can enforce its judgement. These include attachment of earnings, whereby the tenant’s employers are ordered by the court to make a regular deduction from their salary to be paid towards their debt, or a charging order, which prevents the tenant from selling their land or securities without paying what they owe you.

    Another famous method of enforcement is, of course, a warrant of execution – also known as distress, or the ‘nuclear option’. This enables you to use a bailiff to seize and sell whatever amount of your tenant’s goods is necessary to recover the money due according to the judgement.

    However, as aforementioned, the bailiff is greatly limited in terms of what items they are permitted to seize. They are not allowed to take any items that are necessary for the tenant or their family’s basic domestic needs, such as their clothes or bedding, and nor is the bailiff able to remove any items that are needed by the tenant for their job or trade.

    In practice, this may prevent the bailiff from taking almost any of the tenant’s possessions, unless they are a business or there are any valuable luxury items that can be seized.

    The High Court

    If you are a residential landlord and the tenant’s arrears are sufficiently severe that you would like to evict the tenant and repossess your property, you have the option of getting an order for possession.

    It is normally a County Court bailiff’s responsibility to execute this, but if there are long delays due to such bailiffs’ workloads, potentially lasting several months, you may apply to the County Court that issued your possession order, asking them to transfer it to the High Court for enforcement.

    You can actually apply for the possession order and the transfer simultaneously under Section 42 of the County Court Act 1984. On the granting of the transfer application, High Court enforcement officers will evict your tenants within days.

    If you would like to pursue this route, it is vital to ensure that the order is made correctly, using the right wording. You can also add a claim for money to the possession order to recover any rent you are owed.

    As for commercial landlords, it is in addition to the aforementioned CRAR that they have the option of going through the court system to obtain a judgement, which a High Court enforcement officer may then enforce under a writ of control – which, before 6th April 2014, was known as a writ of ‘fieri facias’ or ‘fi. fa.’ as it is usually abbreviated. The court route takes a greater amount of time than CRAR, but may be the more appropriate option in certain circumstances – for example, if there is money other than the rent that you wish to claw back, such as service charges or insurance.
    This may also be an appealing route if there is a licence in place rather than a landlord-tenant agreement, or if the tenant has moved their business to another location, given that a writ of control enables an enforcement agent to go to the tenant’s new business premises and seize goods belonging to the tenant.

    Repossessions

    Unfortunately, there may be scenarios in which recovering rent arrears from the tenant while they are living in the property becomes an unrealistic prospect. This may lead you to take steps to remove the tenant and replace them with someone who is able to afford the rent, which isn’t exactly a fun process, but may nonetheless be something that has to be done.

    There are several possible routes here, including – if the tenancy is an Assured Shorthold Tenancy (AST) – an accelerated possession procedure. This enables you to evict the tenant without providing a reason, as long as you give them two months’ notice.

    To take advantage of the accelerated procedure, you will need something known as a Section 21 notice – a reference to Section 21 of the Housing Act. If a Section 21 notice has been issued to the tenant and they have not moved out by the date specified in the notice, you are able to initiate the accelerated procedure.

    However, the need to fulfil certain other criteria to be able to use the accelerated procedure may mean you instead have to use the standard procedure to repossess your property. This procedure applies to all assured tenancies, as well as ASTs that are to be ended during a fixed term.

    The standard procedure requires that you first serve the tenant with a Section 8 notice. While this provides the tenant with notice that you are seeking possession, it differs from the Section 21 notice in that it requires you to give one or more of the legitimate grounds for taking possession of the property that are outlined in The Housing Act 1988.

    If the date specified in the Section 8 notice passes without the tenant having left the property, you are able to apply to the court for a possession order. Should the tenant then refuse to leave the property by the date that the possession order specifies, you must obtain a warrant of eviction from the court, using Form N325: Request for Warrant of Possession of Land.

    It is illegal to ignore these procedures and simply attempt to remove the tenant yourself.

    Evictions

    The above steps should provide much of the detail you need as to how to evict a tenant in the UK. However, there is further information that you may need to know, such as – when you are following the standard possession procedure – the exact legal grounds for repossession listed in the Housing Act 1988.

    While there are 18 such grounds in total, there are two that are relevant as far as issuing an eviction notice in the UK for rent arrears is concerned: Ground 8 and Ground 11.

    Ground 8

    Ground 8 applies to serious rent arrears, and outlines a series of specific conditions providing grounds for repossession. These include at least eight weeks’ rent being unpaid when the rent is due weekly or fortnightly, or at least two months’ rent being unpaid when rent is due monthly.

    You may also use Ground 8 when rent is due quarterly and at least one quarter’s rent is more than three months in arrears, or when rent is due yearly and at least three months’ rent is more than three months in arrears.

    Ground 11

    Ground 11, meanwhile, can be used when there are persistent delays in the payment of lawfully due rent. However, it is important to familiarise yourself with the circumstances surrounding this before using it to issue a Section 8 notice. This is because the courts will take into account whether the delayed payments may themselves be due to delays in the tenant receiving housing benefit.

    Cost of bailiffs and debt collectors

    According to the Residential Landlords Association (RLA), there is presently a £121 warrant fee for a County Court Bailiff to evict a tenant. However, in the event of the case being transferred to the High Court, a fee likely to be at least £500 is payable to the High Court Enforcement Officer.

    However, according to research by online agents StudentTenant.com, it can cost as much as £2,000 in court fees to legally remove a tenant, with a wait as long as nine months. For more information on debt collector and bailiff fees, consult HM Courts & Tribunals Service’s Civil and Family Court Fees document.

    The time processes take

    The period of time required to legally evict a tenant depends on several factors, including the processes followed and whether the tenant attempts to defend the case.

    According to Paul Shamplina, founder of tenant eviction and debt recovery specialists Landlord Action, landlords can generally expect tenants issued with a Section 8 (14-day notice of the tenancy ending) or Section 21 (two months) notice to vacate the property within the specified time period.

    In the event of the tenant not vacating the property by the deadline, the landlord will need to apply to the court for a possession order. This is normally a 14-day order and normally takes between six and eight weeks to be granted.

    If the tenant still does not leave, the landlord will need to apply for an eviction date with the bailiff, which can take between five and 10 weeks, depending on the given court and how many bailiffs are working there.

    This means that the entire process, from the eviction notice first being served to the application for an eviction date, can take up to
    five months if the case is undefended.

    Conclusion

    As with so many other things in life, prevention is infinitely better than cure as far as rent arrears are concerned. However, it’s also true that even the best-prepared tenants can fall behind with their rent.

    By following the above guidance, whether you are a residential or commercial landlord, you should be well-equipped to navigate the many potential pitfalls involved around the subject of rent arrears, which is so difficult, challenging and stress-inducing for landlords and tenants alike.