Managing rent arrears effectively
As the cost of living continues to increase, it is likely that some tenants may find it increasingly difficult to pay some or all of their rent.
In these cases, where possible it is usually best for both parties to work together to try and find a solution that will allow the tenancy to continue. For the tenant it allows them to remain in their home without the threat of court action, and for the landlord it increases the chances that the arrears will be paid off eventually.
This guide is designed to help both landlords and tenants find a way to work through this, giving both peace of mind and the confidence to continue the tenancy into the future.
Starting the conversation
The most important thing to do is to get in touch with each other. For many tenants, this will be their first experience of not being able to pay essential bills and they may be apprehensive about contacting their landlord in the circumstances.
It is worse to ignore the situation and do nothing.
By starting a conversation with the landlord, the tenant can potentially relieve the stress of financial worries and access financial assistance from the landlord. For example, during the coronavirus pandemic the NRLA found that 90% of PRS landlords offered financial assistance in some way when asked by tenants affected by coronavirus.
The ability to help in this way will depend on the landlord’s own circumstances but, where the inability to pay is temporary, it will generally be better for the tenant and landlord to work together. This helps to avoid rent arrears spiralling and also means the landlord can avoid costs of reletting or evicting through the courts.
Tenants should contact their landlord via email or phone, clearly explaining their circumstances and asking what measures the landlord may be willing to provide in the circumstances to help alleviate the immediate debt problems.
Landlords can also proactively contact their tenants if they are concerned about the impact that the cost of living may be having on their finances. For most tenants, the impact on their finances will be temporary and they may be worried about talking to their landlord. By engaging compassionately with them, the landlord can not only help to reduce their money worries, but also ensure both parties are committed to working together to ensure any arrears are managed afterwards, allowing the tenancy to continue on long term.
At every stage of managing arrears, both landlords and tenants should keep records to ensure that everyone understands what has been agreed to or offered. This provides certainty to both parties and clear instructions on what everyone needs to do to stick to the arrangement.
It also ensures that the landlord can evidence the steps they have taken to help the tenant manage their arrears should there be a need for mediation or court action in the future.
Where the tenant’s preferred communication method is via phone or text, the landlord should ensure they are sending a follow up letter or email outlining exactly what was discussed. This letter or email should make it clear that, if the tenant disagrees with what was discussed, they should provide their own corrected version to the landlord within a reasonable timeframe (usually 7-14 days).
Finally, once a rent repayment plan has been arranged it is essential that the landlord sends regular, easily understandable rent statements to show the tenant how much they have left to pay off.
Once both landlord and tenant are communicating about the financial difficulties there are a number of ways for the landlord to sustain the tenancy by providing support to their tenant; either via direct financial support or providing information and assistance on how to access financial support from the Government or local authority.
Financial support from the landlord
Where the tenant has contacted the landlord to request financial support, and the landlord is in a position to do so, then there are a couple of different options to reduce the rent temporarily.
Rent Reductions
The most common offer from landlords is to reduce the rent for a period. This can be agreed on the basis that the reduction in rent will be deferred and paid back later or that the reduced amount will be waived completely. There is no need to agree this with a new contract and can be done via email. However, the agreement should be clear on the terms of the rent reduction; if the reduced rent is expected to be paid back at a later date then both parties should clearly agree on this.
Another option would be to consider reducing the rent permanently. If the tenant’s income is reduced long term as a result of coronavirus they will ultimately look to leave the property if they cannot afford to live in it. By offering a rent reduction that is less than the cost of reletting, a landlord can save money and sustain a tenancy long term. Similarly, if market rents decline in the area then a rent reduction to the new rate may be an attractive option. If a landlord does decide to offer a permanent rent reduction, they are best advised to speak to their mortgage or insurance providers first to ensure the best way to proceed.
Where the rent has been reduced, landlords must consider whether the deposit may need to be partially refunded. The Tenant Fee ban in England introduced a deposit cap usually equivalent to five weeks rent from the start or renewal of a tenancy. In most cases a rent reduction will not affect this amount but if the current tenancy is replaced while the reduced rent is in place a portion will need to be returned to bring the deposit in line with the deposit cap.
Alternatively, the landlord may agree that at the end of the tenancy any rent arrears will be taken from the deposit with the tenant’s agreement. However, if this is the case then landlords should be aware that the deposit will not be available to cover any damage caused to the property.
It’s important to ensure that whatever landlords agree with their tenants that it is recorded in writing.
Deferring payment entirely
Alternatively, in some circumstances the preferred option might be to agree to not chase the tenant for the rent, waiting for them pay the rent in full at a later date. For example, tenants who are waiting for Universal Credit payments may have to wait some time for their payments to come through.
As the rent is still due, landlords can simply inform the tenants that they understand there will be a wait for payment and that they will expect it when their claim or grant has been processed.
In these cases, both the tenant and landlord should continue to stay in touch in case of any delays on the initial payment or if the tenant needs any support with welfare applications.
Similarly, the landlord may agree that at the end of the tenancy any rent arrears will be taken from the deposit with the tenant’s agreement.
It’s important to ensure that whatever landlords agree with their tenants that it is recorded in writing.
Offering support with welfare applications to tenants
Where a tenant's circumstances have changed and they have had their income reduced then they may need to make a Universal Credit claim.
Many private rented sector tenants have no prior experience of making Universal Credit claims. As a result, they may not feel confident about making the application themselves or know everything they are entitled to at this time.
If a tenant has gone into arrears the landlord can help by making contact to discuss why the arrears have happened and what their circumstances are. By having this discussion the landlord can identify what benefits the tenant may be entitled to and how long the difficulties with payment will last. If it is possible to identify a suitable and reasonable payment plan at this juncture both parties should work together to arrange this.
If the landlord has experience with making Universal Credit claims they should also offer to assist their tenants with making an application if needed. However, as tenants in the PRS rarely go into arrears, most landlords will not have experience with making applications.
In these circumstances, the important thing is that the tenant gets the right information so they can progress any applications as fast as they can. While landlords may be inexperienced at assisting claims they can guide their tenants to useful advice services and websites such as:
- https://www.stepchange.org/ or https://www.citizensadvice.org.uk/ for debt advice
- https://www.gov.uk/apply-universal-credit to apply for Universal Credit
- https://www.gov.uk/guidance/universal-credit-advances if they need to apply for a budget advance during the 5-week wait for the first payment
- https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme if the tenant is self-employed and their business has been affected by coronavirus
- https://www.gov.uk/employment-support-allowance - to apply for Employment Support Allowance
- The tenant’s Local Authority for applications for discretionary housing payments.
- https://www.citizensadvice.org.uk/about-us/contact-us/contact-us/help-to-claim/ for providing assistance with making a claim
When an application for benefits has been made, it is vital the tenant keeps the landlord up to date with the application, including whether any evidence has been provided. This is important, not only for keeping up clear constructive communication but also because when the pre-action protocol is extended to the private rented sector, landlords are expected to avoid applying to court for possession where the tenant can demonstrate they have provided all necessary evidence for a processing a Universal Credit claim to the DWP.
Advances on UC payments
Universal Credit is paid in arrears 7 days after the end of an assessment period. This will typically mean new claims will be paid 5 weeks after the initial claim starts. During this time tenants without savings are likely to struggle to maintain regular payment of bills, including rent.
However, tenants can request an advanced payment to cover this period. The advanced payment will then be paid back over time, usually from future Universal Credit payments.
To do this, tenants should apply via -
- speaking to their Jobcentre Plus work coach
- applying via their online account
- calling the Universal Credit helpline
Direct payments to the landlord
If arrears have built up already, the landlord may apply for direct payments of the housing component of Universal Credit by applying online at:
If the tenant has missed two months of rent payments the landlord should be able to receive the Universal Credit payments directly from the DWP. However as the housing component of Universal Credit is lower than average rents, the landlord should make the tenant aware of any shortfall, allowing them to budget accordingly where possible.
Budgeting
In any situation where somebody has their income reduced, it is sensible to consider as early as possible what spending is essential and what is non-essential. Non-essential spending can then be reduced to help pay the essential parts of the budget such as utilities, food, council tax and rent.
Identifying non-essential spending is likely to be more difficult given the rising costs of utilities and food, but it is still something that is worth engaging in. However, landlords should be mindful of these increasing constraints when approaching the topic with their tenants.
The best way to do this is for the tenant to prepare a budget planner that they can stick to. Many tenants already do this and will be familiar with the process for creating one. For those who are not, debt advice providers have templates for this on their websites such as:
https://www.citizensadvice.org.uk/debt-and-money/budgeting/budgeting/work-out-your-budget/
https://www.moneysavingexpert.com/banking/Budget-planning/
Planning a budget can be time consuming and will require accurate records of spending but it is worth it. Not only will it help reduce the stress of debt but it can form the basis for a reasonable repayment plan once the tenant’s finances are back to normal, allowing them to free themselves from debt earlier.
The tenant will need preferably at least their last three months of credit card and bank statements, as well as their shopping receipts for regular spending. They should use these records to add up how much they normally spend each month and compare it to what they will receive during their current financial troubles. The aim of this is to try as far as possible, to avoid losing money each month by identifying non-essential spending and reducing it so the lower income can pay for the essentials. In particular, tenants should endeavour to remain below two months of rent arrears as far as possible.
Once this budget plan has been completed, the tenant should share a copy of it with their landlord if they are unable to pay all of the rent. They do not need to provide the financial statements or receipts to their landlord if they do not want to but should keep hold of them in case they need to rely on them later. By preparing an accurate, sensible budget, it helps both parties to understand the situation and it shows that the tenant has been doing all they reasonably can to ensure they are keeping to the terms of their contract.
Agreeing a repayment plan
Once the tenant has prepared a budget, both parties can agree a sensible repayment plan for the future based on what is left over after essential spending is accounted for. This repayment plan should detail the amount to be paid each week and ideally be signed by both parties to show they have agreed to abide by the terms of the plan.
When considering the amount of time required to pay the arrears, the key thing to consider is how much is available in the tenant’s budget after the essential payments like rent and utilities are paid for.
For example, a tenant who is out of work for a short period of time may accumulate some arrears but once they resume work, with sensible budgeting, they may be able to pay off any accumulated arrears quickly.
Where the financial challenges are for a longer period, then repayment plans will take longer to pay off because there will be less available in their budget beyond their essential spending.
In both cases, landlords should engage constructively with tenants to arrange a sensible repayment plan that allows the tenant to pay back what they can afford in a reasonable timeframe for both parties. Offering a payment plan that is much lower or higher than the available budget is likely to antagonise the other party, making constructive solutions difficult.
Sustaining the tenancy long-term should be the goal of these repayment arrangements for both parties. Rent arrears are normally a rare occurrence in the PRS but when it does happen, repayment is unlikely if the tenant does not stay in the property. If both tenant and landlord stick to a sustainable long-term plan to pay back the arrears, the landlord can recoup some of the lost income and save money by avoiding the court system.
Further information
Breathing Space Debt Moratoriums
As of 4 May 2021, if a tenant is in unsustainable debt then they may apply for a breathing space debt moratorium by speaking to a qualified debt advisor.
If they are considered suitable then, during the breathing space, creditors may not contact the debtor in relation to the debt, or take any enforcement action for 60 days in most circumstances. Interest on existing debts may also not be charged during this period.
During the breathing space, the debtor will work with the debt advisor to arrange a suitable debt repayment plan. In these cases, you as a debtor must not communicate directly with them about the debt. Instead, you may discuss a repayment plan directly with the debt advisor and they will then discuss it with your tenant.
Further information on breathing spaces can be found in our more detailed guide on the topic.
Mediation
While this guidance is based on the principle that tenants and landlords working together constructively can come to a sensible arrangement for paying any arrears, there will be times where an agreement cannot be reached.
In these cases it may be worth considering a mediation service.
Mediation services can help to set up an agreement that is binding on both parties. However, it is in the interests of both parties to work together to avoid having to reach this point.
For more details on the available mediation schemes see the link below.
