Property Management 101 – Rent Arrears
How many times have you heard an agent say, “we have zero tolerance for rent arrears”?
Every agent tells you they have a zero tolerance for rent arrears but what does that mean? Generally, it means that the agents have a process in place to ensure that as soon as your tenant falls behind in rent they start a follow-up process. When you’re choosing an agent initially the main questions that come to mind are probably around the letting process because at that time the priority is to find a tenant. However asking about an agents rent arrears procedure is equally important. At the end of the day if your tenant isn’t paying rent then you’re not making money.
The process for contacting tenants when they don’t pay rent should be straightforward and simple. They should be contacted from day one and the landlord should be notified on the first day they fall behind in rent. Once the tenants reach the 8th day of non-payment a notice to remedy (breach) needs to be issued to the tenants. If they still haven’t paid at the expiry of that notice a notice to leave needs to be issued to the tenants. While it’s important to understand that the unexpected can happen but it’s also important to remember that if these processes aren’t followed they could have a detrimental impact to your insurance.
This process is very important. But, as an investor the question I would be asking is what is the agent doing to prevent the tenant from ever falling behind in rent in the first place? To me that’s what having a zero tolerance for rent arrears means. The first thing to highlight is that while the lease states the tenants need to be two weeks in advance we cannot legally ask for tenant to pay rent if they’re not actually behind. But, there are still many things we can do to ensure the tenants understand what their obligations are and the repercussions if they don’t pay.
Having the tenant read and sign an annexure at the start of the tenancy highlighting the specifics of the process and what their obligations are is a great way to educate. What’s even better is having a discussion with them and letting them know that while we understand the unexpected can happen there is a reason for us to follow this very strict process. Establishing rapport and building trust will help to resolve any future dispute that may arise or prevent a dispute from happening at all.
The other important thing to consider as an investor is what rent payment options your agent is giving your tenant. There are a lot of great third-party Payment Systems available to agents these days however a lot of them come with the cost to the tenant. While current legislation does state that we need to offer the tenants more than one way to pay rent it doesn’t specifically say if those methods need to be free to the tenant or not. To me it only makes sense to make this process as simple as possible for a tenant as it’s just another way to ensure the rent comes in on time. Frustration over the functionality of these Payment Systems seems to be one of the primary reasons why tenants often end up frustrated or disheartened by the agency.
And finally, it always seems to come back to communication. Much like a landlord it’s important for the tenants to feel like they’re being communicated with and to know that the agent is available when they need them. In an industry that has become so focused around customer service it’s important to ensure that the agents communication process or strategy is negotiable. The last thing we want is for the tenants rent to fall behind simply because their agent wasn’t available to answer the questions when they needed to ask. Referring a tenant to a website or instructions elsewhere might be the fastest solution but not always the most effective one.
Open lines of communication, education and building trust will set up the tenancy to run smoothly and uphold a zero tolerance for rent arrears.