How To Effectively Manage Temporary Rental Arrears

With proper tenant selection, rental arrears should not often (ever) be a problem with your rental property.

However it can happen even with reliable tenants - they may be in between jobs, or they may even get struck down with a temporary illness or injury and be unable to work. This will put pressure on their ability to make their rental payments for a short while.

I call this ‘temporary arrears’: A typically good tenant who has never had problems paying the rent and won’t in the future, they just need a little leeway for a short while. 

Should this ever happen to you, you need a process in place to manage it. 

Below is mine.

1. Recognise it early

Have the tenants been making payments in irregular amounts? Have they changed the day/frequency in which they pay? Have they been in contact on one or more occasions to find out when their rent is paid up until? These all could be signs that your tenant may be having some trouble paying the rent.

2. Tell your tenant immediately

Do NOT wait on this one. When your tenant has fallen behind in their rent - accidental or otherwise - you need to let them know immediately.

Your tenant needs to know that they are dealing with a professional who doesn’t miss a beat so they will need to act accordingly. Do not set a precedent that makes the tenant think that falling behind in the rent is ok. 

3. Let your tenant know you have a zero tolerance on arrears

...and if you don’t have a zero tolerance, get one! Rental arrears is a serious concern for both you and the tenant. Not only will it impact on the returns you will achieve in the long run and add tremendously to your stress levels, but it will also put a big fat blemish on the tenants’ rental history, making it harder for them to secure good housing in the future. It’s your duty to ensure your tenants do not fall too behind with their rent payments.

4. Ascertain the seriousness of the situation

Is this a short-term issue until the tenant finds a new job? Or is this a long term issue that does not look like it will get any better soon? If the latter, perhaps you and the tenant need to work out an exit strategy. If the former then I suggest you continue to step 5.

5. Work out a plan

The arrears must be repaid. This can be negotiated between yourselves, but if one party is not coming to the table you may need the tenancy tribunal to intervene and make a ruling on your behalf. 

6. Work out a Plan B

Hopefully you’ve come to an agreement with your tenants, but I suggest you also work out an alternative solution in case the tenant does not stick to the agreed original plan. This can also be known as a contingency - a failsafe to protect your interests. 

7. Act

Enforce the plan, and enforce the punishment if your tenant does not stick to the plan. As mentioned in step 2, do not set a precedent for future rent-payment mishaps.

Wrapping up

If your tenant has a history of arrears and possibly accompanied by some other non- fantastic tenancy behaviours, then I seriously urge you to consider giving the tenant their marching orders.

This process is for the typically good/reliable tenant who is going through a temporary bad spell. Rather than getting rid of a usually good tenant, there are ways to manage it until the good tenant gets back on their feet and you can go back to the harmonious, peaceful relationship that you were experiencing before.

IMPORTANT NOTE:

You don’t have to go through this process. This will only be used rarely, and only for tenants whose rental history shows that they are worth going out on a limb for. 

So if this is not the case: At any time the tenant is in arrears by 2 weeks or more you are within your rights to request eviction at a tenancy tribunal.