What Happens When your Tenant Falls Behind in their Rent

Rent payments are obviously a crucial part of the investment property journey and alongside capital growth make up your over all return on Investment or ROI. A quality property management business will have systems in place to make it as easy as possible for tenants to make rent payments. In the old days tenants would have to make their way to the Property Managers office and pay cash over the counter on a weekly/fortnightly or monthly basis, but these days it couldn’t be easier. Typically, tenants will be given Bpay details or Direct debit details in which payment can be made automatically or manually depending on the tenants’ preferences. These easy payment systems have certainly reduced the instances of tenants falling behind or overlooking rent payments, but unfortunately for one reason or another some tenants will fall behind, and what happens when and if they do will have a crucial impact on the property investor.

Firstly, why do tenants fall behind in their rent payments?

Tenants do not just typically stop paying their rent for no reason, we find in almost all circumstances of tenants falling behind in their rent, it is due to a recent, significant change in the tenants’ personal circumstances. Eg Loss of employment, relationship breakdowns, new relationships, sudden health issues, business failure etc.

A quality property management business will have a relationship with your tenant, and a good understanding of each tenant’s payment habits. When it becomes clear something is wrong the property manager will get on the phone to the tenant to find out what’s happened and attempt (successfully in most cases) to manage that tenant back to where they need to be. Our Property Managers check tenant arrears daily so they will be alerted as soon as a tenant is 1 day behind.

Property Centrals system for pro-actively managing rent arrears looks like this:

Day 1  – Polite SMS sent to the tenant alerting them that they are now 1 day behind in their rent. (this prompt triggers corrective action more often than not.

Day 2 – 5 Follow up texts will automatically go out if arrears remain unpaid.

Day 3 – 5 Property Manager will attempt to call the tenants to discuss the arrears and attempt to organise rectification of the rent arrears.

The above 3 steps will prompt the arrears payment on 90% of occasions.

Days 5 Arrears reminder letter issued to the tenant requesting rectification of the arrears and potential outcomes if immediate action is not taken to have the arrears paid. Daily phone calls to tenant to discuss payment.

Day 10 Final warning demand letter issued to tenant. Daily Phone calls.

Day 15 Termination Notice issued to the tenant and proceedings put in place to terminate the tenancy per the Residential Tenancies Act.

Its important to note that terminating a tenancy due to non-payment of rent is an extremely rare event, most tenants will rectify the issue after the 1st 5 days of communication or if they can no longer afford to pay the rent will negotiate to vacate the property so it can be re-let. With the right Property Manager looking after your property it is very unlikely that you will lose in the end, but we do suggest that all owners take out Landlord Protection insurance as a backstop. Almost all Landlord Protection insurance companies will cover loss of rent. (do make sure they do before signing up with them).

Lee Waterhouse
Property Central

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