Marc von Grundherr, Lettings Director, Benham and Reeves Residential Lettings, answers all your queries
What should a tenant do if they fall behind with their rent?
We always advise tenants to talk to us immediately if they have a problem paying their rent. It’s better to do this before rent arrears build up and become harder to repay.
If rent isn’t paid and we don’t hear from the tenant, we have strict procedures in place. We email, text and send formal letters every seven days. If the tenant doesn’t pay within 28 days and we haven’t been able to speak to them, we usually recommend the landlord instructs a solicitor to serve a Section 8 notice, applying for possession of the property and recovery of any rent arrears.
However, if the tenant contacts us quickly, we can usually find a solution. For example, if the tenant is working but has cashflow problems we may suggest they pay their rent later in the month, after they have been paid. If they have fallen into rent arrears they cannot pay off in one go, perhaps if they lost their job but have now found a new one, we can help them work out a regular payment plan.
If the tenant cannot afford to continue paying the rent long term – maybe if they have found a new job but at a lower salary than before, it is usually better to agree to end the tenancy early and for the tenant to move out of the property into a more affordable home. This allows the landlord to find a new tenant quickly – many landlords will have a mortgage on the property so non-payment of rent can cause real problems. Ending a tenancy early will involve administration costs and the tenant will have to agree a plan to repay any arrears but it avoids the need to go to court which is always a last resort.
Above all, it pays to remember that this is a stressful situation for both landlord and tenant so communication and cooperation are essential.
What are the risks of Periodic Tenancy?
An Assured Shorthold Tenancy (AST) is the main agreement between a landlord and a tenant which is drawn up for a fixed term – usually 12 months. When this runs out, a new agreement is put in place for another fixed term. However, if neither landlord nor tenant signs a new agreement (and agrees to renew the tenancy for a set fixed period) then a Periodic Tenancy is automatically established on a rolling basis on the same terms and conditions. If the tenant wishes to leave, they must give written notice of one month. The landlord, on the other hand, must give the tenant at least two months’ notice. So, the landlord is already disadvantaged with a periodic tenancy as the tenant has a clear advantage.
Many landlords allow ASTs to become Periodic as they believe it gives both parties flexibility to end tenancies. However as with most things there are of course pros and cons – the main downside for landlords is that when the tenant does leave, it could be at short notice and at a bad time of year like Christmas which could result in an expensive void.
What are the pitfalls of renting to students with a Periodic Tenancy?
Most landlords love renting to students as they generally have parental guarantors and while they generally make good tenants, many landlords elect to allow tenancies to students to become periodic for the flexibility it affords. However, there is now a very serious consideration – one which could prove very expensive indeed.
While students are exempt from paying Council Tax and can apply for a waiver while they study, for tenancies that last for less than six months, (Periodic Tenancies can be counted as only one month as with each month legally a new tenancy starts) the landlord is liable to pay Council Tax – and they, unlike students, are not exempt. We asked most of our landlords and NOT one knew this and the good news is that it is often not enforced, however it could easily incur them costs of at least £1,000 per year for a typical London property and there could be penalties and interest for unpaid council tax.
This situation is not a new one but we have heard of a couple of Councils, though not yet in London, that are now starting to enforce this rule in order to increase their income. This has come as a total surprise to those landlords caught who were unaware of the rule.
Of course, it makes Periodic Tenancies much less attractive to landlords renting to students and we are therefore advising caution as London Councils may follow this lead.
Looking at an average Band G property in some popular boroughs for 2017/18 – Westminster is £1,146 per annum, Hammersmith & Fulham is £1,679 per annum, Kensington & Chelsea is £1,770, Tower Hamlets is £2,078 and finally look at poor landlords in Camden where it would be £2,834!
The key with this issue and other lettings regulations is to stay informed – most landlords will find that, in the long run, it will be more cost-effective to get a new AST signed with the tenant, especially if they are a student or on some sort of benefit. It gives everyone clarity and means a landlord cannot fall foul of this ludicrous loophole.
Benham and Reeves Residential Lettings