What do you do when your tenant stops paying rent?
Has your tenant stopped paying rent? What should you do about it if they have? A tenant in rental arrears is one of the most challenging situations for a landlord. Though there are serious reasons why tenants may fall behind, unpaid rent can cause considerable problems for landlords. Having tenants in arrears removes rental income you might need for mortgage payments and stops you from finding new tenants.
Rent arrears are a difficult situation for you and your tenants, which is why we’ve put together a guide to help you find the best course of action.
The information you’ll need
Knowing what to do if a tenant stops paying rent isn’t easy, but there is some basic information that will guide you through the situation.
The first step is to find out your rights as a landlord and what due process you’ll need to follow. Tenancy legislation is state-based, so in Western Australia you’ll need to consult the Residential Tenancies Act 1987. Another important document is the tenancy agreement, which may contain steps to follow in the case of rent arrears. At this stage, it’s great to have an experienced property manager by your side as they will be familiar with your rights and how to handle rent arrears.
After considering your rights, the next step is to learn why your tenant stopped paying rent. You or your property manager should confirm when rent arrears began and then politely contact your tenant to ask why they missed their rent payments. Hopefully, the unpaid rent will be due to something simple, like forgetfulness, short-term financial hardship, or miscommunication between joint tenants.
If this is the case, it’s best to discuss the rent payments directly with your tenants. There are several possible solutions. If your tenant is experiencing financial hardship, the best way forward may be to allow for a temporary rent reduction and offer a new payment plan that gives your tenants more time to get back on track. Proficient property managers can be a great help at this stage, as they will have templates and guidelines to help this process work as smoothly as possible. At Semple Property Group, we know how stressful it can be if a tenant stopped paying rent. We’re ready to help if you need help navigating this difficult situation.
Your next steps
If your tenant has stopped paying rent and you’ve unsuccessfully tried to negotiate a new payment plan, or if your tenant is suffering from a complicated, long-term issue which prevents them from paying, it might be time to escalate the situation.
The first step is to send a breach notice, formally informing your tenant that they are in arrears. At this point, it’s crucial to stick to due process and wait the legally prescribed number of days the tenant has to respond. This period varies across Australia but is typically either 7 or 14 days.
Following this period, landlords can send a non-payment termination notice, which ends the lease and requests vacation of the rental property. Your real estate agent or property manager will have the correct template to use, which should contain your reason for terminating the lease agreement, the date tenants are required to leave, and the property address. You may choose to include a reminder that if the tenant pays the outstanding rent, the eviction process will stop.
If the period given to leave in the termination notice elapses and the tenant has not left the property, the landlord or their property manager can bring the matter before the relevant administrative tribunal. In Perth, that’s the local Magistrates Court for the area the property is situated in Western Australia. You’ll then go forward to discuss the arrears in a closed hearing with your tenant.
At this point, you need to show clearly that you gave your tenant enough time and options to resolve the situation, and that you followed due process. Hopefully, you can make an agreement which allows you to receive your rental income and your tenant advised of a date to vacate the property. Should the tenant not follow the order to vacate the property, a warrant of possession is required, which allows the landlord to engage a Bailiff to attend at which time the locks are changed and the tenant is escorted off the property. It’s important to note that you are legally required to place your tenant’s property in storage if they can’t move it out themselves.
How to avoid rental arrears
It’s best for both landlords and tenants to avoid disputing over arrears. Ideally, what happens if a tenant stops paying rent will remain an abstract question for you.
Avoiding arrears starts before the rental agreement is signed. When considering new tenants, it’s great to have a property manager check the person’s rental history and ensure that paying rent won’t take up too much of their income. Paying a high percentage of their income as rent can create financial stress for your tenants and increase the likelihood they’d be unable to make timely payments. Once you’ve signed the rental agreement, it’s essential that you or your property manager maintain communication with your tenant, conduct regular inspections and quickly answer any requests.
Experienced landlords and property managers can recognise warning signs commonly seen before a tenant stopped paying rent. If you or your team notice that the property is unclean, has suffered damages, or if excessive rubbish is kept at the property, you may wish to reach out and express concern to your tenant.
Basically, you want to choose the right tenant, maintain a good relationship with them and know what happens if a tenant stops paying rent. For all three steps, a property manager can be a lifesaver. At Semple Property Group, one of the leading providers of property management Perth has to offer, we’re confident that our experience, high standards and commitment to ethics and integrity will help you with your real estate needs. Give us a call today!