There were 103,329 landlord claims in 2012 that led to an order for possession being made, which is the highest recorded rate over the last 5 years and represents a continuing upward trend. It is estimated that between 67 and 80 per cent of claims led to a possession order.
The number of cases of private landlords applying for possession using the accelerated procedure is up by 85 per cent over the last 3 years, indicating the difficulties in chasing rent from defaulting tenants.
Non-payment, late or partial payment of rent remains the biggest worry for landlords – good letting agents are tending to highlight the risks to landlords more, and are putting procedures in place to help protect themselves and the landlord against the nonpayment of rent.
According to the latest Tenant Arrears Tracker by chartered surveyors Templeton LPA the number of tenants in severe financial difficulty, actually fell in the last quarter of 2012 the lowest figure since the final quarter of 2011, but they warn that property-owners and letting agents need to be more vigilant when screening potential tenants, since it is easier to avoid arrears than it is to recover them.
Michael Portman, Managing Director of LetRisks comments:
With the continuing difficult economic situation and job losses in certain parts of the UK, some tenants are finding it hard to make ends meet. With rents rising by up to 11 per cent in some areas, tenants are faced with rising rental and living costs. For some, the pressure is too great and they fall into arrears with their rent.
The continuing rise in possession orders is a sign that the situation is getting worse. Letting Agents need to advise landlords on how they can reduce the risk to landlords. One simple way is legal expenses and rent insurance which gives landlords piece of mind and more importantly insurance cover, arrears and legal costs of evicting the tenant
LetRisks has compiled some tips to help minimise the risk and disruption for landlords and agents:
Advise the landlord that the tenant’s circumstances could change. If the tenant was to default can the landlord afford the legal costs and loss of rent for 6 months or possibly longer?
Ask the landlord to sign a disclaimer saying that he/she has been made aware of the risk and is prepared to either buy specialist cover or accept the risk and not benefit from specialist cover which is available
If the rent is late, donâ’t delay action.
Let your landlord know immediately what you are doing if the rent is outstanding, and manage their expectations
Chasing the rent arrears -“ Establish a firm rent chasing timetable including letters before legal action, telephone scripts, serving notices etc, and make sure that that all staff are aware of these procedures.
Get the right tenant -“ work with a good tenant referencing partner and don’t cut corners in the checking procedures.
Is the Tenancy Deposit correctly placed? The changes in legislation under the Localism Bill take effect in April, and we have heard of solicitors acting for tenants on a no win-no fee basis to catch out landlords and agents if they haven’t complied with the regulations.
Guarantors agreements -“ Ensure that you maintain up to date contact details for Guarantors so that you can copy them in on all correspondence you send to the tenants regarding their late/overdue rent. This helps apply additional pressure to the tenants to pay.
Is your procedure for serving Section 21 notices compliant? Last year it was reported that 70 per cent of notices were thrown out of court because they were wrong. More landlords are relying on the accelerated procedure to regain possession. If the notices are incorrectly served, there will be delays and additional costs that the landlord may seek to recoup from their agent.
Know your landlord -“ Ask if there are any mortgage or other outgoings at the start of the tenancy and their attitude to risk if the tenant was to default. It takes approximately 8 weeks from a possession claim being issued to an order being made -“ can your landlord afford this situation? A Legal Expenses and Rent insurance policy from a specialist supplier may be the solution. If you are concerned about whether you can discuss insurance policies with your landlord please contact us first.
Know your tenant -“ maintain contact with the tenant, to establish why the rent is late or unpaid. It will improve your chances of a successful outcome.
Making an insurance claim -“ contact the insurers at the earliest opportunity and follow their claims procedures.
From an FSA regulatory perspective, making your landlord aware that insurance is available is good practice, whereas advising on a specific insurance, or arranging cover falls under the FSA regulations. If you are unsure, check whether you are able to offer this service with your current supplier.