Rent arrears: Is giving tenants more time to pay good business practice?
Most Landlords at one point or other have allowed a tenant extra time to pay. It is usually offered after a plea from the tenant who may (or may not) be experiencing temporary (or permanent) financial problems. But is offering this dispensation good business practice or is it delaying the inevitable?
Dukes act on dozens of instructions each month to collect rent arrears where tenants have been given extra time to pay. Sometimes, it’s good business practice to allow clients some leeway when settling invoices – it engenders good will and makes the relationship stronger. But sometimes customers are just buying time so they can pay someone else; someone who may run a stricter debt recovery regime.
Rent arrears – whether commercial or residential – are priority debts, and should be settled before most other debts. If your tenant is struggling to pay their rent, they could well be in financial difficulty, so giving them extra time to pay may jeopardise the chances of recovering any money at all.
Rent arrears – terms and conditions
One of the downsides of giving tenants ‘grace periods’ is that they can be open to future abuse. The old adage “give a man an inch and he’ll take a mile” often rings true. Once tenants have been allowed a certain amount of leeway, many see this as an ongoing arrangement. At best, this can be a future pay-by-date for your customer to use. Worse, if allowed to run unrestricted, grace periods are perceived as contractual; with the line “you allowed me to pay on that date last time” used. Worse still, it becomes a minimum pay-by-date, to be stretched out even longer by your tenant.
If you are considering offering a tenant extra time to pay, it must only be granted with definitive terms and conditions i.e. ‘this one time only’. Otherwise you may get caught in a never ending cycle of rent arrears.
Rather than concerning yourself with the impact of payment on your tenant, you need to consider the impact of NON-PAYMENT on YOUR business. If tenants can’t afford to pay their rent on time, that’s not your responsibility and ultimately they must either pay up or face the consequences. These consequences MUST involve some form of financial penalty – otherwise there will be no deterrent to avoid rent arrears in future.
Financial penalties – using CRAR
Financial penalties come in the form of enforcement charges. Commercial Rent Arrears Recovery regulations allow you to instruct Dukes Bailiffs (through a Warrant of Control) to send a Notice of Enforcement. This warns your tenant to settle the rent arrears within 7 clear days (in practice usually 14 days) and adds £75 to the debt.
If your tenant fails to pay, Enforcement Agents will attend with a view to seizing goods to cover the rent arrears. This adds a further £235 to the debt plus 7.5% on any amount by which the debt exceeds £1,500 (see Statutory Enforcement Fees).
At this point payment plans can be arranged to allow your tenant to pay over an agreed period of time (should you wish). However, this is different to allowing extra time to pay BEFORE the enforcement process as long as the agreement is secured through a Controlled Goods Agreement (CGA).
The CGA allows Enforcement Agents to re-enter the premises and remove goods if the payment plan is broken. Removing goods for sale attracts a further charge to the debtor of £110 plus the relevant 7.5% percentage increase on debts over £1,500.
If you need advice about how to deal with tenants owing commercial rent arrears, please call Chris Furness on 01785 825507. Alternatively, you can download a Warrant to Control to complete, scan and email to info@dukeslimited.co.uk.
