Preventing, Controlling and Recovering Rent Arrears
In modern tenancies, the tenant typically pays rent via standing order into the landlord’s or agent’s bank account. The tenancy should stipulate the method for which rent is payable and how it will be collected. The tenant should consent if the collection is by regular visits to the property.
Before letting, proper and reasonable inquiries will reduce the risk of arrears.
The tenant is responsible for ensuring rent is paid in full, on time, and in the manner agreed upon in the tenancy agreement.
Although it is not the landlord’s responsibility to issue reminders or chase payments, you should establish effective procedures for managing arrears because late payment is not unusual.
Landlords who are letting to a tenant who claims Universal Credit to help pay their rent should familiarise themselves with the welfare benefits system, particularly housing-related benefits. Arrears can occur when a landlord and tenant fail to complete the paperwork correctly and on time, and claims may not be backdated.
In times of hardship, tenants who are not initially claiming benefits may need to seek Universal Credit (UC) to help pay their rent. The landlord should be sensitive to such situations and offer support to the tenant in submitting a valid claim. Help may also be needed for vulnerable tenants who cannot submit a claim unaided. Productive support can help reduce arrears, even though this is not a legal requirement.
Arrears can occur for various reasons; sometimes, this can be resolved between the landlord and the tenant. Suppose the tenant is unable or unwilling to pay or is habitually late. In that case, the landlord may terminate the tenancy using the most appropriate legal method for that particular type of tenancy.
You should seek early legal assistance unless you are trained and skilled in the procedures for terminating a tenancy. Failure to follow guidelines properly may mean any action will fail in court. It is important not to inadvertently harass or illegally evict the tenant, as both are criminal offences.
Section 8 of the Housing Act 1988 can be used to recover possession and claim arrears owed. In general, if landlords make an error, the courts may reject the application. Sometimes the court does not have to agree with a landlord’s request to terminate a tenancy, even if it finds the facts claimed are accurate.
You may also recover arrears through the County Court, including the ‘small claims’ procedure, which will obtain a county court judgment (CCJ) against the tenant.
A CCJ can affect a tenant’s credit rating, affecting their ability to rent in the future and as a deterrent to running up arrears. Obtaining a CCJ against a tenant does not mean the landlord will automatically receive what is owed. If the tenant does not pay, the judgment (or order) can be enforced, which will involve further costs.
When incurring court or enforcement costs, landlords need to consider how likely they are to recover any monies owed. Bailiffs cannot take possession of a tenant’s belongings if they are on hire purchase, so a tenant’s apparent lifestyle may not reflect their ability to pay. As an alternative to using bailiffs, the judgment can be enforced utilising an attachment of earnings order, where the tenant is employed or by a third-party payment order, where someone else who owes the tenant money pays it to the landlord instead. You can also use a CCJ to recover money from a bank account when it is in credit.
The small claims procedure is typically used if the amount claimed is less than £10,000, including any interest.
A claim can be made online using the Money Claim Online service.
The procedure for obtaining a CCJ will include the following:
- Under the pre-action for debt claims, the tenant must be sent a letter before claim, which must include the following:
- the amount of the debt
- whether there is interest or other charges
- where the debt arises (e.g. rent relating to a written tenancy agreement)
- details of how the debt can be paid (e.g. the method of and an address for payment)
- if regular instalments have been offered (or are being paid), an explanation of why that offer or payment is not acceptable
- a Reply Form
- the address for the Reply Form to be sent
- The tenant must be given 30 days to respond to the letter of claim.
- If a settlement can’t be agreed, mediation should be considered.
- A claim can be made online or using a form N1 (for small claims).
When is Rent Due and in Arrears?
Rent has developed its own unique rules over time, which include:
Rent is payable in arrears unless there is an express agreement to pay it in advance (most tenancy agreements state that rent is payable in advance).
Where rent is payable in advance, the landlord is entitled to the full rent due on the last rent day before termination, even if the tenancy ends mid-rent period. But, where the rent is payable in arrears, the landlord is only entitled to rent until the tenancy is determined.
Rent is due in the morning of the appointed payment date, but it is not in arrears until after midnight.
If rent is payable in advance, it will only become payable if the term has continued until the end of the rent day.
Rent may be made payable on a Sunday and, if not paid, will be in arrears by midnight. But, rent due upon a bank holiday will not be payable until the following day.
Where rent is payable on a calendar monthly basis, and the due date is 29th - 31st, the corresponding date rule will apply if the next due date does not exist. The due date will instead be the closest possible working backwards. For example, if the rent is scheduled for 30th January, the following calendar month’s rent will be due on 28/29th February.
Debt Respite (Breathing Space) Regulations
From 4 May 2021, rules offering debtors breathing space in certain situations apply.
A tenant in debt can seek advice from an authorised debt advisor or local authority. The debt advisor might suggest a breathing space moratorium as a suitable option.
There are two types of breathing space:
Standard breathing space – available to anyone and lasts up to 60 days.
Mental health crisis breathing space – only available to a person receiving mental health crisis treatment and lasts as long as the treatment, plus an additional 30 days.
Standard Breathing Space
A standard breathing space will only be started if that is an appropriate option. Under regulations, the debt advice provider must consider whether:
The debtor has sufficient funds or income to discharge or liquidate their debt as it falls due,
It would benefit the debtor to enter into a debt solution,
The debtor may be eligible for a debt solution during a moratorium or as soon as reasonably practicable after the moratorium ends, and
The moratorium period is necessary for the debt advice provider to assess which debt solution would be appropriate for the debtor, advise the debtor on that solution, or implement a debt solution.
As the regulations state, to be “appropriate”, the debtor (tenant in our context) should be able to continue with ongoing liabilities such as rent. The tenant should not use breathing space to delay paying the rent where there is no prospect of payment.
A standard breathing space lasts up to 60 days, and there must be a “midway review” between 25 and 35 days from the start of the breathing space (see later).
Mental Health Crisis Breathing Space
For a mental health crisis moratorium to be started, the debt advisor must consider whether:
- The debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due,
- A mental health crisis moratorium would be appropriate, and
- An approved mental health professional has provided evidence that the debtor receives mental health crisis treatment.
A mental health crisis breathing space lasts for as long as the mental health treatment is ongoing, plus 30 days.
Creditor Notification
Suppose the creditor (landlord in our context) is notified that a breathing space has been started. In that case, the landlord must conduct a “creditor search” to verify that the debt referenced in the notification is correct. If a debt owed by the debtor was not included in the notification, the landlord must promptly provide the debt advisor with details.
Where there’s an agent and the landlord has been notified of breathing space, the landlord must notify their agent of the breathing space and, if they fail to do so, could be liable for any losses the agent incurs.
Suppose there are ongoing court proceedings relating to the debt (for example, a rent arrears notice previously served). In that case, the court must be promptly notified in writing of the breathing space.
Once a landlord creditor (or their agent) has been informed of the start of a breathing space, no action on the debt may be taken, including contacting the debtor tenant (about the debt).
Contacting the tenant about other matters, such as repairs or routine maintenance, is acceptable.
You must direct any communication about the debt to the debt advisor. It would be best to address data protection, as the breathing space regulations do not authorise information disclosure, which would contravene data protection rules.
The actions which you must NOT take include (but are not limited to):
- Make any contact with the tenant about the debt.
- Serving a rent arrears notice (but serving notice for other reasons is allowed).
- Commencing proceedings relating to a notice served on rent arrears grounds if you served notice before the breathing space started.
- Commencing any other legal proceedings relating to the debt
- Enforcing a judgment relating to the breathing space debt (if you obtained a judgment before breathing space started).
- No interest, fees, or other charges can be added during the period (even if the tenancy allows).
Where the tenancy is joint and several, and the debt relates to the tenancy (e.g. rent), the actions above must NOT be taken against any of the other tenants, even if the breathing space is in a single name. The breathing space applies to all persons jointly and severally liable for the debt.
The list above is not exhaustive (basically, don’t do anything, no contact, nothing for the duration of the breathing space). See the official guidance linked later for what cannot be done.
As a point of note, if the landlord or agent has software that automatically sends rent-due notifications, there will need to be a system to stop this automation during a breathing space to avoid inadvertently contacting the debt. In addition, if there is a system for automatically adding interest, there will need to be a plan in place to prevent that.
Midway Review (Standard Breathing Space)
Between 25 and 35 days from the start of a standard breathing space, there must be a review by the debt advisor.
At the review, the debt moratorium must be cancelled, respecting some or all moratorium debts if the debt advice provider considers that–
- a debt solution has been put in place respecting all the moratorium debts,
- the debt advice provider has been unable to contact the debtor, including for reasons of the unavailability of the debtor or,
- the debtor has failed to comply with any of the debtor’s obligations, namely:
- inform their debt advice provider if there is any material change in their circumstances or financial position,
- make any payment due relating to an ongoing liability as it falls due to be paid during the moratorium period,
- not to obtain additional credit, either alone or jointly with any other person, that at any one time collectively exceeds £500,
- engage with the debt advice provider in such a way as the debt advice provider considers appropriate.
There are several exceptions to cancelling the breathing space, even if any of the above apply.
If the breathing space is not cancelled, it will continue until its end (a maximum of 60 days from the start).
If it is cancelled, the landlord or agent will be notified.
End or Cancellation of the Breathing Space
When the breathing space ends, action can be taken (such as serving a section 8 notice) if the debt remains unpaid and suitable arrangements are not made.
No interest, fees, penalties, or charges may be assessed on the debt during the breathing space.
Non-payment during the breathing space will not be deemed a breach of contract.