What to do when tenants fall behind on rent - How lenient should you be?

12 September 2016

Insights and advice for property investors & home owners.

What to do when tenants fall behind on rent - How lenient should you be?

One of the hardest situations a landlord can encounter is how to deal with tenants who fall behind on rent payments. The rental contract must be honoured and rent has to be collected, however there are often mitigating circumstances for tenants. What are these circumstances? Should they be taken into account? What are the most appropriate ways to ensure payment? We spoke to Bernard Parker, principal of Quinovic's Kapiti-Mana franchise, to help answer these questions.

In what situations do tenants fall behind on rent, and what usually happens?

There is often a good reason for a tenant falling behind. These can include things like not being paid on time, missing work through illness or injury, or being short of money temporarily due to Christmas or bills. In cases such as these, it may be most appropriate to allow some leniency, and the majority of tenants will repay any owed money within a week or two, with minimal disruption to the landlord. When deciding on how lenient to be, look for tenants who show good intentions and genuine reasons, who readily engage their landlords to pay back the rent.

What happens in more severe cases?

If no satisfactory reason is given for late payment and a tenant continues to default, then they can be served a notice of default. After 21 days of defaulting, the tenant can be taken to a tribunal, where they can be ordered to pay any outstanding debt. This can be taken directly from their income to guarantee payment.

What problems can be encountered during the process of collecting late payments?

Whilst cases rarely actually progress to a tribunal, landlords can come across other problems. For example, tenants may try to avoid the issue by ignoring communications from the landlord, hindering the chances of reaching a reasonable solution.

A lot of private landlords may only take a bond of 1- 2 weeks, which does not cover the 21 days required to take tenants to a tribunal, potentially leaving the landlord financially liable.

How can problems be solved?

Most tenants will be reasonable, and if they have an acceptable reason for late payment then the best course of action to ensure a favourable outcome for both parties is likely to be working together. A manageable repayment plan that the tenant is able to adhere to could be arranged. However, the best way to prevent any liability in the first place is for landlords to take a sufficient bond.

What can Quinovic offer private landlords?

We can offer a range of services to prevent any issues arising, and to help you to solve any that do occur. Our experience gives us a great position from which to assist you with any communication with tenants. We contact tenants the day after a payment is missed to determine their reasons. We also contact them in multiple ways to reduce the chance of them avoiding messages. Opening communication like this so promptly greatly increases the likelihood of resolving any issues in a timely fashion, and takes the pressure away from landlords.

We also make sure we take 3-4 weeks rent as a bond in order to mitigate any financial risk for landlords. We have found that larger bonds make tenants more likely to look after a property well and pay rent on time.

If you have any questions or want advice around raising rent, talk to us.

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