Management of rent payment arrears
Late payment of rent is one of the most common problems faced by Property Managers and the most worrying as it can escalate into a large dollar amount very quickly which is bad for both the Manager and Landlord. Going through the motions such as a text or e-mail to the tenant is unlikely to get the desired response which a Manager will know, so more assertive action is needed – not a pleasant task but then no job is plain sailing all the time.
The Easy Way Out
Sending a 14-day notice to the tenant to remedy the situation, sending e-mail, letter or text to back up the notice then wait for the resulting payment to be made (or more likely not paid). At the end of the notice period apply to the Tenancy Tribunal and get a hearing for a month’s time, or probably longer.
Definitely send the 14-day notice correspondence as this is legally required. However, a good Manager or Landlord will have other standard measures to take to chase the arrears before they get out of hand – remember the tenant will have use of the property until the Tribunal rules otherwise and that could leave you with arrears of around two months. The system outlined below has been proven to be effective over 25 years with no defaults.
Management Guidelines to recover Late Rent Payments
- The 14-DAY NOTICE to a defaulting tenant is a legal necessity to enable future action, however this must be tempered by the past relationship with the tenant. A tenant who has made a habit of defaulting on payments, or they are a generally unsatisfactory tenant, should be issued with the notice promptly. With other tenants who have had a good payment history and with whom you have a good relationship it is much more advisable to have a face-to-face conversation with them to see if the problem can be sorted out first. There can be all sorts of reasons for late payment and a good tenant should be given leeway to sort their problems out and sending a 14-day notice could easily sour the relationship. Therefore a time scale to issue the notice (say between immediately and a couple of days) should depend on the above criteria.
- MAKE CONTACT with the tenant within a day of the default. Preferably by phone to verbally organise a meeting to physically collect the rent owing. It has been found that when a tenant knows the Manager or Landlord will personally be round to collect the arrears nine times out of ten the tenant will manage to find the money (or payment for damage if that is what the overdue amount is for). Chasing up payment immediately (no later than a few days) is the critical factor here.
- FACE-TO-FACE MEETINGS have the best success rate in comparison to other forms of communication. Hints are given below on how these should be handled. The most important thing to remember is that if your tenant has defaulted on their rent they may also have missed other hire purchase instalments on their car or home appliance – you need to ensure that you are top of their priority list and you will have the advantage of being their most “in your face” creditor.
- BACK UP PAPERWORK should show a record of any meeting between you and the tenant with details of any agreement reached – this paperwork may be necessary for future reference.
- KEEP TRACK OF PAYMENTS which have been promised. If the agreement made at the meeting is not honoured organise another face-to-face meeting immediately – a common arrangement is for half the arrears to be paid by the day after the meeting with the remainder being paid within five days. The payment of rent regime needs to be re-established as quickly as possible and the arrears not left to build up as the bigger the arrears the less likely it is that full payment will be received. Managing default payments so they do not escalate is the sign of a good Property Manager or Landlord and a repetition of personal contact steps as above will show the tenant you will not accept late rent payments as the norm.
- VARIETY OF PAYMENT SYSTEMS can be another tool when chasing late rent or damage payments. You should be able to accept credit card payments as well as cash and Eftpos. A firm called ‘Rent on Time’ has been set up for these types of payments and all charges are paid by the tenant with no set-up costs.
- COMMUNICATION WITH THE TENANT should be done on a daily basis, even if there is nothing to discuss. This will confirm to the tenant that you will not allow any arrangements made for payment to be defaulted on. Good managers in the corporate world will get regular updates from their staff on any problems arising – the same applies in property management where you are the manager and the tenant is the staff. This system is much more likely to achieve a result before the end of the 14-day period.
Advising the tenant of the consequences of going through a Tribunal Hearing can also be a big deterrent for them personally. When they are told that their credit record can be affected which would impair their ability to obtain finance and that future landlords would also have access to this information, they may realise that in the long term a rent default is not the best option. However, this would be a ‘future’ worry whereas a personal visit from the Property Manager or Landlord is an immediate concern and much more likely to yield a result.
- A GOOD WORKING RELATIONSHIP with your tenant can pay dividends in a rent default situation. If you get to know the tenant personally you will have more idea of your courses of action when there are payment problems, and they will be able to discuss problems with you. It will not always help solve the problem but it is a sort of insurance. Debt collectors appointed to recover money have no such knowledge and can only use the rules set out for recovery, this is where you have the advantage to sort out the matter before it gets to that stage.
By the time the Hearing and appointment of a Debt Collector is reached the rent is likely to be around seven weeks in arrears and it is most unlikely that the tenant would be able to come up with that sort of money. This would then mean an arrangement to pay off the debt which could stretch into years – not a particularly good result from the Landlord’s point of view.
The bottom line is that you want the arrears to be paid and the rental cycle to be resumed as quickly as possible, using the above steps this is a much more likely outcome. Don’t just send correspondence or leave messages to chase up arrears – use the 14-days usefully not as a waiting period and you may be surprised at the results you achieve.
Barry Bridgman has been managing his own investment property portfolio for 25 years. During this time, there has never been any occurrence of rent defaults or property damage and Barry’s goal is to achieve the same for your property. Bridgman Property Management is based in Auckland Central, where Barry has lived for more than 18 years.