Cheque’s not in the mail

The New Year often means rental arrears spike. Landlords and agents can use these tips to help limit the risk of rent default.

Rent default can become a serious issue for landlords over the festive and New Year period as tenants forgo paying rent in favour of buying gifts and celebrating. And it’s a problem that can stretch into the first months of the year as the festive financial ‘hangover’ lingers and the start of the school and work year means inevitable expenses.

As a result, claims for lost rental income spike in the first three months of the year and landlords can find themselves facing thousands of dollars in rental arrears – as these claims examples from this time last year illustrate:

Claim example 1
A tenant in Victoria stopped paying rent in early December 2017. Although they were issued with a notice to vacate toward the end of January 2018, the tenant refused to leave and a court order was issued granting possession of the property. However, as the tenant continued to refuse to vacate, a warrant of possession was carried out by the police and the tenant was finally evicted at the end of February. The landlord was able to make a $7,711 claim which covered the initial six weeks’ rent default and the denial of access period after the notice to leave expired, until the tenant left the property.

Claim example 2
The tenant lost their job in early December and stopped paying rent on the property in NSW. Despite the agent attempting to contact the tenant, there was no response and when they checked on the property they found the tenant had abandoned the premises, leaving behind rubbish and some possessions. The tenant eventually contacted the agent and advised they had moved interstate for work. A total of $3,250 was paid to the landlord, which covered a claim for five weeks’ loss of rent (two weeks’ arrears and 21 days’ required notice period as the tenant was on a periodic lease).

Claim example 3
A Western Australian tenant had a history of being in arrears but completely stopped paying rent in December. They were issued a termination notice to vacate the property in early January. However, the tenant did not vacate and the matter went to tribunal. The tribunal ruled that as the tenant was in hardship and unable to find another property at that time of year, they could stay in the property until the start of March, on the condition that they kept to the payment plan stipulated. The tenant did not keep to the payment plan and vacated the property on the date specified by the tribunal. The $5,613 claim covered six weeks’ rent default, the denial of access period from after the termination notice expired until the tenant vacated the property, and, as the tenant was on a fixed-term lease, also covered some of the loss of rent while a new tenant was found.

Want to avoid the risk of having your claim held up as a cautionary tale for others?

10 tips to help landlords and agents minimise the risk of rental arrears:

  1. Screen tenants
    Background checks on prospective tenants are crucial (but make sure any checks you do comply with your state’s tenancy legislation). Check industry databases, call up referees, speak to previous landlords and agents, and verify employment and income. It can often be beneficial for the landlord to meet the tenant, as a tenant may be less likely to default on their rent if they have a face to go with the hardship of their not paying and not just an account number that their rent gets transferred to.
  2. Be vigilant
    Once a tenant has moved in, conduct regular property inspections. ‘Red flags’ may suggest absconding or defaults are on the horizon, for example the home is packed up although the lease is not close to expiry. Maintain an up-to-date record of tenant contacts (home, work and mobile numbers, email addresses), including details of a relative to contact if you can’t contact the tenant.
  3. Maintain good rapport and a positive working relationship
    Disgruntled tenants are more likely to break their rental agreements, abscond or default on rent. On the other hand, happy tenants are more likely to pay their rent on time, stay in the property longer and look after it as if it were their own.
  4. Communicate with the tenant
    Open and transparent communication with tenants can often mean that they notify you of payment difficulties. Knowing there is a problem can mean that a plan to tackle the arrears can be created to keep everyone happy.
  5. Set a formal routine
    Clearly explain the rent payment procedure to tenants so there is no ‘grey area’ from the outset. Adopt a zero tolerance policy for rent arrears and nip late payments in the bud early before it turns into a chronic situation. Set up automatic payments such as direct debits, with very few or no exceptions.
  6. Put systems in place.
    Having procedures in place to deal with unpaid rent means you’ll be on top of the issue. Subject to the laws in your state, contact tenants immediately they are in arrears and request payment. A documented plan of addressing arrears should include timeframes for action (e.g. phone calls, letters, formal notices, tribunal/legal proceedings) and take into account the legislative requirements.
  7. Monitor arrears daily
    Agents should produce an arrears list – and act on it. Landlords should monitor their bank account the day the rental payment is due and continue to monitor the account daily, ensuring the payment is received or get in touch with the agent for an explanation.
  8. Show some compassion
    There are circumstances that can legitimately impact a tenant’s ability to pay, such as job loss, relationship breakdown, illness, partner death or unforeseen expense, and if they were otherwise an ideal tenant consider what can be done to help (so long as it is economically feasible). However, don’t accept just any excuse and be cautious of tenants with highly believable, yet continual, excuses for late, partial or non-payments.
  9. Take rectification steps
    If you end up needing to evict or go to court over the matter, having all your paperwork in order will help your case. You need to understand the legislated procedures and how you can seek restitution or eviction.
  10. Ensure rental income is protected
    Neither landlord nor agent rents a property to a tenant expecting that they’ll default on their payments, but sometimes life and circumstances beyond anyone’s control can derail even the best intentions – making comprehensive landlord insurance cover an effective risk management strategy.

Heads up: If a landlord needs to make an insurance claim for rental loss, it’s important that the eviction process has taken place. Eviction usually takes weeks, so  landlords and agents need to act quickly in rent arrears cases to limit the financial impost endured before claiming and to meet their obligation under the policy to prevent further loss.