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How far in arrears is too far?

Life is unpredictable. Sometimes we see tenants end up in arrears. It’s often something that can be managed and rectified to get the tenancy back on track, but sometimes this isn’t possible. What both landlord and tenants like to know at this point is when certain actions can be taken to address the problem of arrears in a tenancy. This could be a complicated and stressful time on both sides of the problem, so clarity and calm are essential.

In the first instance, the answer here is simple. Look in the Tenancy Agreement. The terms of the contract between any landlord and tenant should outline the process and any penalties for the tenancy falling into arrears. This is one of many problems that can arise during a tenancy that show the importance of a clear written contract that all parties understand from the outset. For examples in this article, I’ll refer to our own tenancy agreement.

Before starting to refer to any processes or consequences of arrears in a tenancy, it is important to know that one thing helps over anything else during difficult times and that’s communication! There’s one line that we hear over and over again in our office and that’s “the only problem we can’t solve is the problem we don’t know about”. As long as we are in communication with our tenants and landlords throughout difficult times, we find there’s always a solution. If conversation lines aren’t open, it can be impossible to find a solution that works for everyone.

Within our standard tenancy agreement, there is a built-in grace period, before which even if the rent is late, it isn’t considered to be arrears. At Brighton Accommodation Agency, this grace period is three days for the day the rent is due. This is useful in keeping things on track, especially when considering that on a bank holiday weekend, payments can be delayed by three days. During this time, we may be in touch with the tenant, to check that there aren’t any problems.

Once the initial grace period is passed, this is when the late rent is considered to be arrears on the account. At this point, our accounts team would begin to chase the outstanding rent. Under the terms of our agreement, this also results in a fee being added to the tenancy, to account for the staff time in pursuing the outstanding funds.
As a business, our standard agreement then follows a process of pursuing funds as they become later and arrears mount, this can also include contacting any guarantors that may be in place to guarantee the payment. At each stage, this can mean additional fees on the account, as time isn’t free in pursuing payment. However, I would add at this point, that our first port of call is always to work with tenants and I know in our office, these fees are only added when work is carried out to pursue outstanding funds and not when we are in contact with tenants, who may be having a hard time and are working with us to solve the problem.

It's at this point that we consider the ability of a landlord to pursue action further than simple provisions within a contract when arrears are mounting. As with any amount unpaid under any contractual agreement, there is the possibility of recovering the outstanding funds through the courts. But the real question at this point that all landlords ask is “how and when do I get my property back?”

These are never easy times to manage for even the most experienced agents and landlords, particularly considering the moral questions behind pursuing those that are struggling or evicting anyone, but with calm heads, a solution is always in reach. I won’t go too far into court processes in these scenarios, as that risks pushing this article to new lengths, but it is important to know the notices that need to be in place to recover a property.

The first and simplest of these is the Section 21, Notice to Quit. This can be used to bring a tenancy to a close at the end of a term. A landlord must use a standard form document, known as Form 6a to serve legal notice to the tenants that they would like the property back. This form requires two months’ notice, so is often not the preferred choice when there are arrears. However, the advantage is that accelerated possession can be applied for if the tenants have not left after the date on the notice. This usually requires no hearing. This can, however, only be used at the end of a tenancy, or if the tenancy is on a periodic basis (outside a fixed term).

The other option at this juncture is a Section 8, Notice Seeking Possession of a Property. Depending on grounds, this can bring the tenancy to a close much sooner. Depending on which grounds are being claimed, the right to reclaim the property may be mandatory, or discretionary on the part of the judge hearing the case. Different grounds also have different notice periods. For this article and the discussion of rental arrears, we will focus on grounds 8, 10, and 11. When issuing a Section 8 notice under these grounds, only two weeks’ notice needs to be given.

Ground 8: This ground can be used in the event that a tenant is two months in arrears, for monthly rental payments, or eight weeks in arrears for weekly rent payments. It is a mandatory ground and as long as it can be shown to be the case, this will always result in the property being returned to the landlord.

Ground 10: This ground can be used where there are arrears on the tenancy, but these are not extensive enough to meet Ground 8, as shown above. This would be no more than two months’ arrears for monthly payments and no more than 8 weeks’ arrears for weekly rent payments. This is however, a discretionary ground, so it would be up to the judge hearing the case as to whether or not the property will be returned to the landlord.

Ground 11: This ground can be used when the tenant has been consistently late or consistently fails to pay the rent, whatever level the arrears stand at. This is again a discretionary ground and the judge will decide whether to return the property to the landlord.

When serving a Section 8 for rental arrears, landlords will often use all three of these grounds at the same time (if they all apply). This gives them the ability to rely on the mandatory ground if it still applies, but it avoids the risk of the notice no longer applying, should the tenant bring the arrears below two months (or 8 weeks).

To the question of how far is too far in arrears, the answer is at all. However, life isn’t always as straightforward as we’d like it to be and most people understand that. If there’s ever a problem, stay in touch with your agent, or landlord to try and smooth through the hard times and find a solution. Failing that, there are always contractual options to resolve the problem, or notices to bring the property back to the landlord.

If you’ve got problems with arrears, or any questions, please email and we’ll do what we can to help.

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