If you're a landlord or property investor reliant upon a tenant or party paying a rent or form of income, then you'll know the pain of these monies not being paid. The often escalating problems of blatant arrears and sludgy payments can not only mean additional hassle and costs in chasing, but increased cash flow risks and difficulty with being able to pay important costs yourself like mortgage payments.
There is a lot of information now available on how you can begin clamping down on this, and advice on, say, what notice or letter to serve on a tenant before going to court to make them pay up, or get out. This is often in a classic landlord tenant relationship through a lease, although you can have other scenarios like licences and title restrictions where similar principles of recovery apply.
A lot of this information is more legal-based, and often geared towards typical short-term residential tenant or business occupiers. There's advice on what forms to fill on, timescales to adhere to, and court applications to maybe fill in. This is all important if you have such black-and-white situations, but often your own unique situation has other factors that mean you need a more bespoke approach.
The Principles of Chasing Arrears
Therefore here is a real basic guide on how to approach the whole subject. This is deliberately not looking at technical detail, but taking a step back and seeing the bigger picture. It's also very generic, so more principles to apply to your own situation, although does tend to assume a typical situation of standard rent arrears for say a residential or business occupational tenant.
And the way these are explained is through a simple 3-stage traffic light system. This helps show how urgent things need to be, so the initial 'green' ones are more simple and initial initial steps, whereas 'orange' needs time to pause and consider your options and situation carefully in order to make sure you make the right call.
The final 'red' one is stop and get ready to really beef things up with some serious legal or court action, only worthwhile after you've gone through the first two steps.
It's important to look at this gradual approach for lost of reasons. The main one is that you might just simply get it wrong, and not be able to successfully get the arrears paid. This can mean you rack up costs and time going down blind alleys, and create a bad landlord-tenant relationship afterwards.
So hold tight, look at the options, and get it right.
The 'Green' Go Options
You'd be surprised how a lot of payment problems actually just boil down to communication not happening for whatever reason. Invoices maybe don't reach the right people, tenants maybe forget and simply need reminding, and payment might have been mistakenly paid another way. It shouldn't be like this really, as the obligation to pay exists irrespective of things like this, but in reality it is, and a straightforward chasing and 'credit control' procedure will probably sort a lot of issues out.
Make sure you keep the chasing up though, as often the culprit who forgets the first time will do so a second and a third, therefore make sure you check and chase that promised payment, say, next week rather than assume it.
You might also be able to look at payment plans to be realistic with affordability, but make sure this is realistic, clear, set up with regular standing order payments, and it is carefully agreed in writing so as to be able to always go back to the original basis under the lease or agreement.
If things still aren't happening, then you can always start making clear that 'further action' will be needed if they don't play fair. This might even be a final warning letter before action, and it can often help to play good and bad cop, so one of you is the nasty landlord taking action whilst the other can be more nice and chat through in order to try and come to a realistic solution.
The 'Orange' Preparation Options
At this stage, you need to begin taking steps to recover the money without yet going the full way. This will get the message across loud and clear and narrow down the ones who will unfortunately need further action.
It might be worth a initial solicitor’s letter warning of action, as although there is a cost to this that you may need to cover if not possible from the tenant, simply by reaching that stage of a headed-paper solicitors letter can speak volumes and help bring things to a head.
You could also begin looking at other avenues to secure the arrears if things are not going to plan, a popular one being any deposit you hold, and drawing funds down from this. If this is protected with short-term residential AST agreements then you'll need to go through procedures with third-party holder, and when you do successfully take the money you will need to formally inform the tenant to then top the deposit back up ASAP.
There are also other individuals and people to approach, for example any mortgage lender, guarantors, and even former tenants as in the case of some commercial property leases. Don't forget to check if there are joint tenants on the agreements as well, and any other contacts for the same tenants such as their appointed agents or other points of contacts.
It might also be worth thinking out the box and coming to an agreement for the tenant to surrender the lease early, after all if things can't be afforded going forward as well as now then it may be worth all parties having an early reality check.
The 'Red' Action Options
Okay, this is the final stage, and full on steps to now get arrears paid. The popular way is to involve solicitors and court proceedings, typically through small claims for smaller monies, and involving detailed particulars of claims and service of notices.
With residential AST leases there are common methods like a section 21 and 8 notice which can also help deal with ending leases as well as securing arrears, although a well informed tenant can stretch matters out before you reach the final stage of any possession order and court bailiff being involved.
If you actually need the lease ending as well as arrears paying, then you may be able to look at forfeiting the lease, although this will need to be done in a prescribed way with rights of relief from tenant to have the lease re-instigated if they do pay-up and behave.
For commercial properties, you also have something called CRAR, standing for Commercial Rent Arrears Recovery, which took over from the former distraint and 'sending in the Bailiff' remedy. By sending notices and abiding by procedures and time frames, an enforcement agent can attend the tenant site and begin a process of earmarking their own goods to cease and sell if needs be.
A final angle might be when the tenant is having insolvency, and therefore it is looking more difficult for them to actually be able to pay any monies and carry on under the lease. Again this gets complicated, and as well as having to react correctly to any formal correspondence saying they are insolvent, you may be able to instigate this yourself through statutory procedures for bankruptcy or liquidation.
Ready, Steady, Go - Time to Pay Arrears
So as you look at how you're going to get those arrears paid by your tenant or other property interests, go carefully through the options traffic-light style. Start off by the gentle green way of more general communication and fact-finding, before going onto the orange state and getting ready to take things further, and let the tenant know you are.
If these don't do the trick, then you're ready for the big red one and taking the final legal or other action, whether directly or through advisors like solicitors. Certainly at this stage, and ideally in the earlier stages as well, get some good advice and get this right from the start - even though it might be a text-book issue of rent arrears, say, with a short-term tenant, there can still be unique factors to bear in mind.