Rent Arrears

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The payment of rent is usually the main incentive for a landlord to grant a tenancy of his property, and by agreeing to the tenancy the tenant is under a contractual obligation to pay the stated rent. The obligation to pay rent is implied into all tenancy agreements. The administration of rent arrears is one of the less pleasant tasks undertaken by landlords. The landlord needs to tread a careful path between being sufficiently assertive with defaulting tenants without being so severe or intimidating that a tenant could make a claim against the landlord for harassment.

Technically, the rent is due in the morning of the day specified, but the tenant will not legally be considered to be in arrears unless they have failed to pay by midnight of that day. When payments are received by bank transfer, several days delay can be expected to allow for bank payment delays, weekends and bank holidays.

Avoidance and protection from rent arrears

There are a number of measures open to the landlord to reduce the incidence of arrears.

Vetting – Although knowledge is always better in hindsight, it is vital nonetheless to gain as much knowledge about a tenant and their circumstances before granting them a tenancy. Vetting procedures should be thorough, and it should be remembered that bank references and credit checks are only a guide and do not always give the complete picture. Data protection regulations and controls mean that companies and banks are increasingly reluctant to disclose detailed information about clients.

Previous landlords sometimes do not disclose adverse information on their tenants so that they can pass the problem on to the next person as soon as possible.

The landlord or agent should be sensitive to even the slightest scrap of information or tone from any references or conversations with previous landlords.

Sureties and guarantors – if a landlord has any doubts about the ability of a particular tenant to meet the rent payments, they can request that the tenant obtains a guarantor who would be required to sign a surety or guarantor agreement in order to guarantee the rent payments. It is important that any guarantor is also carefully vetted with appropriate financial checks before being accepted.

Insurance – various insurance schemes are now available to protect the landlord where the tenant stops paying the rent. The rent protection insurance will pay the rent (often up to a specified length of tine), and additional cover is often included to pay for the landlord’s legal costs in recovering possession and any rent arrears. Rent and legal protection policies make various requirements on how the tenancy should be conducted, and unless these are followed carefully the protection will be rendered void.

Set-off

Tenants often try to justify rent arrears by withholding or ‘setting-off' damages or deductions for repairs against the rent due. However, the common law rule is that a tenant does not have a general right to withhold rent if the landlord does not carry out repairs.

The remedy of set off is only due where the landlord has clearly breached a repairing obligation, and the tenant has followed a prescribed procedure (see Rent).

Remedies for rent arrears

At common law, the landlord is unable to enforce a right of re-entry for breach of covenant to pay until he has made a formal demand for the rent. Such formal demand must be made by the landlord or the landlord’s agent, normally at the demised premises, and case law has established specific conditions. However, to obviate these inconvenient requirements virtually all leases will now state that the landlord can re-enter once rent is in arrears for a certain period, whether the rent ‘has been formally demanded or not’.

Repossession

A tenant may only be evicted following a court order. Therefore, if the tenant falls badly behind with the rent and does not appear to be in a position to clear the debt, the landlord will need to start court proceedings in order to recover possession of the property and any arrears owed.

In order to recover the arrears it is important to take timely action before the arrears become substantial. Like any bad debt situation, the person in debt will often pay the most pressing demands for payment first so it is important to press for payment early. Starting with an initial reminder letter, it will be necessary to pursue a sequence of steps that are legally required before possession proceedings are commenced and the person can be evicted.

In order for a landlord to recover possession of a property let on an assured shorthold tenancy before the fixed term has come to an end because the tenant has defaulted on rent payments, he must follow the requirements of s. 8 Housing Act 1988. See Letting Factsheet 8 – Claims for Possession: The Section 8 Notice

This provision allows a landlord to bring a tenancy to an end, provided that the landlord has served on the tenant a notice in accordance with this section and can prove at least one of the 17 grounds specified in Schedule 2 of the Housing Act 1988. If the landlord can prove more than one, it is advisable to cite multiple grounds. The grounds in respect of rent arrears are:

  • Ground 8 - Both at the date of the service of the notice under section 8 and at the date of the hearing -
  1. if rent is payable weekly or fortnightly, at least eight weeks' rent is unpaid;
  2. if rent is payable monthly, at least two months' rent is unpaid;
  3. if rent is payable quarterly, at least one quarter's rent is more than three months in arrears; and
  4. if rent is payable yearly, at least three months' rent is more than three months in arrears.

This is a mandatory ground, so if the landlord establishes it the court must order possession. The court cannot dispense with the requirement that the landlord serves at least two weeks notice on the tenant.

There are also two non-mandatory grounds relating to rent arrears, so the court has the discretion whether or not to grant a landlord possession even where he proves the ground. These both also require that the landlord serves at least two weeks notice on the tenant.

  • Ground 10 - Some rent lawfully due from the tenant -
  1. is unpaid on the date on which the proceedings for possession are begun; and
  2. was in arrears at the date of the service of the notice under that section relating to those proceedings, except where the court regards it equitable to dispense with the requirement of notice
  • Ground 11 - Whether or not any rent is in arrears on the date on which proceedings for possession are begun, the tenant has persistently delayed paying rent which has become lawfully due.

The accelerated possession procedure cannot be used to claim rent arrears and possession, a separate court action would be required to recover the rent arrears.

Where the tenant is in rent arrears in respect of a tenancy that is not an assured or assured shorthold tenancy, the s. 8 route to possession cannot be used.

Forfeiture

Where the landlord has reserved the right of re-entry of the property, he may forfeit the lease for a breach of the covenant to pay rent.