Everyone knows that, when you’re a landlord, having a tenant in rent arrears is a challenging situation that can feel like a minefield.
As a landlord – and especially if you depend on rental income to pay your bills – it’s a concern that’s always been there, but for many it’s a much bigger issue during lockdown, a time when other income is affected.
Of course, it goes without saying not all landlords are rockafellas with money to throw around, and you may have a different approach to rent arrears than you had a couple of years ago, due to Covid potentially having an impact on your livelihood and savings.
In any case, when the worst happens, it can feel like a huge strain as you try to figure out what to do, and where to turn for help – which is something we understand from both sides of the coin.
So, if you’re currently in the situation of struggling with a tenant in rent arrears, what are your options?
In this blog post, I want to highlight the fact that you do have options if you find yourself in a difficult situation with a tenant – and help is out there, if you know where to look.
Some background about the six-month notice period
Before Covid, private tenants were entitled to be given two months’ notice if they had a Short Assured Tenancy (SAT) or three months if they had signed a Private Residential Tenancy (PRT).
However, when the Coronavirus (Scotland) Act 2020 was passed on 01 April 2020, the notice period for any tenancy was extended to six months, regardless of whether they had a SAT or PRT (apart from some limited exceptions).
Not to labour the point, but to be clear, it means that if you decide to issue notice to your tenant in rent arrears today, then it’s six month’s notice that you have to give them.
The legislation was extended in September 2020 and is due to end on 31 March 2021. It’s possible for the Scottish Government to extend this again, for one last time, on 1st April 2021. Time will tell if that happens.
NOTE: The majority of tenanted properties will either have an active Scottish Private Residential Tenancy (PRT) or a Short Assured Tenancy (SAT). All new tenancy agreements signed from 1st December 2017 will be PRT, which replaces the old SAT.
However, if it’s not extended, then things should revert back to the two or three-month notice period, depending on the type of tenancy you have – which might mean you’ll be able to get your property back quicker.
In which scenarios could the notice period be reduced?
It’s also worth noting that whilst the six notice period is in place, the notice period has now reduced from three months to 28 days where:
- The tenant has a relevant conviction,
- The tenant has engaged in relevant anti-social behaviour,
- The tenant associates in the let property with a person who has a relevant conviction or has engaged in relevant anti-social behaviour
- The tenant not occupying the let property as the tenant’s home
NOTE: There was also the six-week ban on evictions enforced by the Scottish Government until the end of March (2021).
In principle, we 100% believe that protecting the place where people live is important, and that by and large tenants are good people who ultimately deserve protection. And, on the other hand, we also appreciate there will be some who try to abuse a situation to their advantage.
Overall, we have to question if the onus, for dealing with the impact of covid on the Scottish Private Rented Sector, has fallen too much on landlords? It feels like it is and we know it’s putting you in a very difficult position.
Have rent arrears increased due to Covid?
It might surprise you to read that, amidst fears rent arrears must be going through the roof and causing a myriad of nightmares for landlords in Scotland, that according to John Blackwood from SAL, their advice calls on rent arrears have only increased by 8%, at the time of writing this article.
John Blackwood was recently quoted in Landlord Focus saying:
Although this is encouraging news, we decided to dig a little deeper, and approached Gary Fleming, Sales Manager at PayProp, to see what he had to say:
Of course, I understand this doesn’t help you if you’re currently experiencing financial difficulties due to Covid (but if you are only worried about it, the stats above may go some way to setting your mind at ease).
So, what can you do if you’re struggling to deal with a situation where your tenant cannot – or simply will not – pay rent?
Rent arrears: What are your options?
I’ve explored some of the options available to you if you find yourself in this situation – we hope it helps.
1. Arrange a payment plan
It’s been really great to see the increased level of communication between landlords and tenants over the past few months – and long may it continue. In that spirit, if your tenant is facing financial difficulties, the very first step is to talk to them; listen to what they have to say.
It could be that it’s just a small blip, or that they need a little assistance to get them back on their feet. There are solutions that involve just a bit of give and take, such as coming up with an agreeable payment plan.
TIP: You can maybe direct your tenants to the Scottish Government’s Tenant Hardship Loan which they can apply for here.
Perhaps you could agree to a reduced rent for a period of time, or put the rent on hold whilst your tenant finds a solution to the problem (such as finding new or temporary employment). You could even decide to put the rent on hold for a period, and backdate it – or not.
It’s entirely at your discretion, as long as you come up with a workable solution you’re both happy with, and can review again at an agreed date.
Safe Deposit Scotland launched a mediation service for those in rent arrears back in August. This helps to bring two parties together, and helps to get them in a position where an agreement can be made, without requiring any legal action or involvement.
Safe Deposit Scotland operations manager Mike Smith recently told LettingAgentToday:
“Despite measures like [the emergency legislation introduced by the Scottish Government in April], Universal Credit and other various government schemes, people in both private and public housing accommodation are still struggling to pay rent.
“This is why we’ve introduced our resolution service to help alleviate the financial pressures caused by the pandemic, and ultimately help tenants avoid eviction and help landlords secure income.”
3. Speak to your solicitor
If you have a trusted solicitor you can turn to, they should be able to help you explore your options and advise you on your next steps. But as a last resort, they can also help in negotiations with your tenant before going to the fourth option on our list.
It’s worth bearing in mind that solicitors will charge a fee – the alternative is seeking help through legal aid.
4. The First-tier Tribunal for Scotland Housing and Property Chamber
If all else fails, it could be time to take the issue of rent arrears to the next level, through what’s known as a First-tier Tribunal, formed to help resolve issues to do with rent or repairs between landlords and private tenants.
To enlist the help of the tribunal, you’ll need to fill out an application form, and a committee may wish to inspect the property ahead of the hearing. To learn more about how the Property Chamber works, and to apply for help, visit the Housing and Property Chamber website.
NOTE: Although first-tier tribunals are definitely an option to explore, it’s worth noting that it can take more than six months to end a tenancy this way, making it a last resort for many landlords.
5. Issue notice
It could be that you never reach this point (and I can understand if you’d prefer to avoid it). However, it should be noted that issuing notice is still an option, and one it would be remiss of me not to cover in this article.
So, if you’ve tried everything else and are seriously considering issuing notice to your tenant, the more important question is perhaps regarding when you should do this.
If, on the 1st April 2021, we do revert back to a two or three-month notice period in Scotland (again, depending on the type of tenancy you have, as mentioned above), you may be able to get your property back quicker than if you were to issue notice right now – so it could be worth holding off.
There’s nothing to stop you issuing notice right now, but in theory it will be a longer, more drawn-out process.
Other financial help available for landlords
We wrote a blog post during the first period of lockdown covering some of the financial help available to landlords at this time, so it could also be worth checking out: ‘Financial Support Available for Scottish Landlords Post COVID-19’.
In it we’ve mentioned options such as the PRS Landlord Covid-19 Loan Scheme, income tax deferral, the self-employed grant, and other options such as mortgage holidays.
It may be that you didn’t need the help then, but things change, and some of these options are still available.
What we’d like to see here at Portolio
This may be a little self-indulgent (because who wants to listen to what we think ;-)), but we’re going to say it anyway.
Simply put, what we would like is for landlords to get more protection. We do understand that good tenants deserve to know their home is safe.
However, the system needs a way for each case to be judged on its own merits, and to ensure no-one on either side can take advantage of or abuse the new legislation.
Advice from the property pros
Traditionally, rent arrears tend to spike around Christmas, and again around the summer holidays. I can’t stress enough how important it is to maintain communication when your tenant is having difficulties paying the rent; it should always be your first port of call.
Take the time to understand your tenant’s difficulties, and see if you can come to some sort of arrangement. Serving notice on a tenant is never a pleasant experience, and we can understand why you would want to avoid it.
One particular landlord with a tenant in rent arrears got in touch with us right before lockdown, just before the six-month notice period.
This landlord had already served notice and did go to a tribunal; she was eventually given the right to evict her tenant. But not without a lot of messiness and paperwork involved.
We’ve also heard stories from landlords – and letting agents – really struggling with rent arrears, and tenants who are clearly playing the system.
We feel that it’s in everyone’s best interests to come to some sort of amicable agreement, but in reality, it’s not always possible.
Unfortunately, landlords can find themselves in the awful situation of having to deal with a tenant in rent arrears, whilst still remaining sympathetic (which is important).
We understand that now more than ever, it’s an incredibly difficult situation to find yourself in.
Communication with your tenant is vital, and should always be the first step. If you can’t come to some sort of arrangement, I hope some of the other options above may be able to help.
Whether you have a tenant in rent arrears, or you need any advice on any other aspect of tenanted property, feel free to get in touch.
Even if we can’t help, we’ll try to point you in the right direction of someone who can.
Good luck, and – until next time!
Written by Ross MacDonald, Director of Sales & Co-founder of Portolio
Get in touch on 07388 361 564 or email to email@example.com