As a landlord, you may well be used to dealing with tricky tenants who are consistently late with payments but what do you do when a once-reliable tenant experiences unexpected financial difficulty? As changes have come into place in order to tackle the coronavirus pandemic, many workers have lost their jobs or have been furloughed with 80% of their income paid by the Government. For those already living on tight budgets, this is likely to have already had a major impact on their ability to meet their financial commitments.
Applying for a mortgage repayment holiday
If you rely on your tenant’s rent to keep up with your own mortgage repayments, you may need to put a hold on your own commitments if they’re unable to pay you. To discuss your options, you will need to contact your mortgage lender directly; many are now offering online applications.
Ban on tenant evictions
From the 27th March 2020, the Government introduced a complete ban on evictions as well as additional protection for renters to stop landlords evicting tenants who are unable to keep up with the rent payments – this has initially been put into place for 90 days. During this time tenants will still be liable to pay their rent, but landlords have been asked to work with their tenant to come up with a reasonable solution. Ultimately, renters are being told to stay inside their homes even if they cannot meet repayments.
The Government has asked landlords “to show compassion and to allow tenants who are affected by this to remain in their homes wherever possible.”
While this is a positive step for many renters, giving them the much-needed reassurance that they will still have a roof over their head should the worst happen, it does potentially pose an issue for landlords with problem tenants.
Proactive vs reactive
As both homeowners and landlords alike are offered a 3-month payment holiday to help those struggling to meet repayments, some landlords are considering whether to offer the same favour to tenants. Whether this should come in the form of a payment holiday or a temporary rent reduction will need to be determined by the past history of the tenant, your own financial situation and how keen you are to keep the tenant on-side going forward. Consider what is realistic for the sake of keeping good tenants and avoiding an unoccupied property in the future.
If you’re proactive about opening up the conversation with your tenant(s), this will give you an early indication of where they’re at and whether they may need support further down the line. It may also help to build upon your tenant-landlord relationship as it shows that you’re actively trying to help them without waiting for them to ask. With that being said, many landlords conducting a reactive approach and treating each tenant on a case by case basis will find this approach just as effective, without opening up the floor for people to take advantage.
If you know that your tenant is working from home and is still on full pay, but they ask for a payment holiday nonetheless, open up with the conversation but reserve the right to refuse their request. You are not obliged to agree to a payment holiday simply because there is a pandemic if your tenant remains financially unaffected.
Assessing tenant affordability
David Cox, chief executive of ARLA Propertymark, suggests that in order to understand whether a rent reduction is necessary, landlords should retake the initial affordability check on the tenants’ finances.
‘It’s important to understand what tenants could afford on any reduced or furloughed income,’ he explains.
‘It would also need to be made clear whether this is a temporary rent reduction or a deferral.
‘If it’s a deferral, a payment plan will need to be set up to ensure the tenant clears the rent arrears that are accrued during this period.
‘Additionally, landlords and agents will need to be clear about whether they will implement the interest clauses that exist for rent arrears on most tenancy agreements.’
Navigating exceptional circumstances
While in most usual circumstances, allowing for a payment reduction could be in breach of your contract, in these unprecedented circumstances, it’s very unlikely that your mortgage lenders will dispute this. Once you have come to an agreement with your tenant, you just need to get a letter in writing confirming the dates and rental amount you have agreed – this should be signed digitally by both parties. Ensure to make your lenders aware of what you have agreed.
Will my insurance be affected?
If you’re concerned about how any changes will affect your Property Owners Insurance policy, or you want to know exactly what you’re covered for in terms of Loss of Rent and more, just give CCS Insurance a call on 01483 726777. We’ll talk you through anything you need to know.