In this Video Emma Falco from Belvoir Lettings Peterborough explains what Landlords can do to protect themselves against Tenant arrears and defaults.
Video Transcript
Hi my names Emma Falco and I’m here today to speak with you following a report made by a Peterborough law firm, to advise that in the first quarter of 2014 there are around 47,000 possession claims made by landlords against tenants who have defaulted on their rent.
Now I think the most important thing for landlords to take away from this report is to ask themselves what are they doing to protect themselves and ensure if this happens to them, if this happens to their tenants, that they’re protected and they try and reduce their losses as far as possible.
So the first thing really, and probably the most important, is a rent and legal insurance policy. So a lot of landlords will be aware that these policies are available and a lot may have them. But do you know what this policy covers and what you will be covered for if something goes wrong and what you wont be covered for and what you’ll be expected to pay? So the things to look our for is does it cover tenant rent default? So a lot of policies will be 6 months in advance, so you’ll get either a lump sum at the start of the tenancy or you’ll get it guaranteed to be paid monthly for the first 6 months. But after those 6 months have expired what happens then? Is there any cover should the tenant default after that time or is there any legal expenses cover?
So typically if we need to go to court to gain possession of a property, it can take anywhere up to 4 to 6 months. If your property is worth £500 a month in rent and you loose 6 months of income, that’s £3000 plus you’ve got the legal expenses on top of that which is around £900 to £1200, depending on if you’re going for a judgement for the arrears as well. So you need to study this policy to make sure it’s covering you for these things. So you need to see whether it’s going to cover solicitors’ fees and the solicitor to serve the relevant notices, it’s vital that the notices are served correctly because you don’t want to get to court, they’ll find an error with the notice, and then you have to start the whole procedure again because the judge wont award possession based on that notice.
So from experience the majority of tenants, if they’re going to default on their rent, they don’t do it within the first 6 months. It will be 6 months to a year after the tenancy started, perhaps they’ll lose their job or they’ll fall into financial hardship and they then unfortunately miss payments on their rent. So this policy needs to be exclusive of the whole life of the tenancy, not just for a set period at the beginning of the tenancy or a set period at the end and it needs to cover tenant rent default and legal expenses.
Unfortunately there will be an excess to pay on the policy, which is typical of most insurances. Whether that’s one months rent or 6 weeks rent. So what you need to do is be aware of the excess and have some form of safety net in place for yourself. So keep a little by from the rent each month, keep that in a separate pot. You know if something was to go wrong you’ve got that that you can rely on, so you’re still able to keep up with your commitments such as your mortgage, that you also won’t fall into financial hardship. So just to be aware of all the clauses in the policy and what is covered.
If you’re a self-managed landlord, these policies are available to you. Occasionally there will be a slightly higher premium for them but again something definitely worthwhile having. If you are self-managing it’s important that you have your own late-rent procedure in place, so you know what you would do if your tenant defaulted on their rent, how you would go about pursuing that and hopefully recovering the money. So set out these things with the tenant when the tenancy initially starts, make it very clear to them what is expected of them, start out on the right foot and as you mean to go on and make sure everything is clear. So both parties fully understand their obligations and what’s going to happen if something does go wrong.
Also if you’re self-managing, it’s vital you register your tenant’s deposit. If you try to rely on a section 21 to regain possession and the matter needs to go to court, a judge will not award possession if you have not got a registered deposit. If you don’t take a deposit from your tenant that’s fine, but if you take any money at the start of a tenancy that money must be registered or you’ll not be able to use a section 21 notice to gain possession, so that’s also something quite important to look out for.
So really it’s all just about protecting yourself, making sure that you’re covered, making sure that you’ve got something in place that should something go wrong. It’s not common, it doesn’t happen all the time, but it does happen. So you need to be aware that if it happens to you, you’ve got peace of mind that you’ve got something in place. It’s an unfortunate thing, but you’ve mitigated your loses as much as you can.
So if anyone has got any questions on this topic, or they’ve got any feedback, or advice they’d like to offer, if you’d like to get in touch I’d be pleased to speak to you all about it. Thank you.
