Protect yourself against rent arrears - it's cheaper than you might think
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For most landlords, the number one concern is whether their tenant is going to pay the rent.
There is a variety of reasons why tenants get into arrears, and the Covid pandemic, which has seen many people’s incomes drop through furlough or disappear altogether because of redundancy, has exacerbated the problem.
There is much that the landlord can do to minimise the risk of arrears. The most important thing is to establish a good dialogue with tenants, so that you become aware of any impending issues before they become a problem, and find a solution in a collaborative way – perhaps by deferring rent payments and agreeing a catch-up payment plan.
Good management of a tenancy is the number one way of avoiding rent arrears problems. This includes getting professional help: according to research carried out on behalf of the government by Denton House Research, landlords that don’t use a letting agent to manage their property are 272.5 per cent more likely to be two months in rent arrears.
But even with the best management and the most constructive dialogue, unfortunately rent arrears can happen – often as a result of circumstances rather than any malicious intent on the part of the tenant not to pay. So how can the landlord protect their income against this happening?
The answer is a Rent Guarantee Policy. This is an insurance policy which steps in to pay any rent arrears after a set period of time (often as little as one month). Such policies generally also include legal expenses cover, which can meet the cost of court action to force eviction in the event that the tenant continues to default.
Traditionally these policies could only be taken out at the start of a tenancy, but we are now able to offer policies which can come into effect midway through a tenancy, provided the tenant was properly referenced, and that they are up to date with the rent at the time the policy is taken out.
This is a significant change, and one which will be useful for many landlords whose tenants are facing changed circumstances in the current challenging economic climate.
This policy also has no exclusions for Covid-related non-payment of rent, which is an important factor for many.
And the cost of this cover? It’s less than you might think. To protect a monthly rental of between £501 and £1,000 per month (which covers the majority of tenancies in Norfolk), it works out at £21.39 a month.
That’s a small price to pay for the reassurance of knowing that you will receive the rent you are due even if your tenant is unable to pay it, and that you are also covered for the legal costs of eviction if that becomes necessary.
Phil Cooper is lettings partner at Arnolds Keys. www.arnoldskeys.com