There are probably three things that buy-to-let landlords hate most: taxes, unoccupied tenancies and, of course, bad tenants. The vast majority of tenants are perfectly responsible, but if you are unfortunate enough to have a problem, it pays to know how to act.
Table of contents:
- When the worst happens
- Evicting a tenant
- Screening your prospective tenants
- Rogue agents
- Deposit protection and disputes
- Don’t regret non-compliance
- When it all goes wrong
Becoming a new landlord can be a stressful time so it’s worth considering the potential issues nightmare tenants can bring and how you would deal with the potential issue of unpaid rent.
TV shows such as Channel 5’s Nightmare Tenants, Slum Landlords can be a worrying program for both tenants and landlords with many horror stories, so it works for both parties to get good tenancy agreements in place that protect both parties.
We have been lucky that Paul Shamplina from Nightmare Tenants, Slum Landlords, but he is also the founder of Landlord Action and a Brand Ambassador for Hamilton Fraser, gave us some of his time and offered some hints about dealing with nightmare tenants.
When the worst happens
A nightmare tenant can make your life hell. Some landlords have endured financial hardship via unpaid rent and a few have been unable to pay their own mortgages because a tenant is refusing to pay their rent. It’s not unknown for a landlord to use the same court to evict a tenant and fight eviction for missing his own mortgage.
Paul worked in law firms before becoming a private investigator and a registered bailiff. One day he met a previous business partner who had a three-bedroom house in North West London which was being occupied by 22 illegal immigrants. Paul helped him evict the tenants, and was inspired to start Landlord Action.
Of course, 98% of the time a tenancy will run perfectly smoothly, but things can happen and sometimes circumstances change. A tenant could lose a job or run into financial trouble and fall into rent arrears; they may have perfectly good references – even from previous landlords, but still cause problems, and you might have a dispute over the repayment of a deposit, damage or cleaning.
If that happens, you need to deal with it in the right way. It’s all too easy to fall into the trap of landlord rage, or make a mistake over compliance, which can make it very difficult to evict your bad tenant. Compliance is becoming a bigger issue for landlords. You’ll have to run a host of checks and provide all sorts of documents because if you don’t, your position will be critically undermined.
On top of all these compliance issues, the Government has changed to a harsher tax regime for landlords. Even so, being a landlord is still an attractive proposition. Demand is strong with most agents saying they have 11 or 12 applicants for each property. Rents may be levelling off, but they are still attractive. Times may be tougher now than they have been, but it still represents a good long-term investment. The challenge can sometimes be getting landlords to look at it in that way.
Evicting a tenant
So, what happens if you do have a problem tenant?
If you have a problem tenant, you can draft a Section 8 Notice which gives them 14 days to respond or a Section 21 which gives them a notice of two months.
If your tenant fails to either pay up or leave, the law says you must go to court. The cost for the court fee, the fee for the eviction service if you use one, an advocate to represent you, and VAT will be around £900. The final step comes if you have to get the bailiffs in, for which the fee is £300.
It is a stressful and arduous process and can take a lot of time. All in all, the process can take four or five months. It will be easier – both on your nerves and your wallet, if you can avoid problem tenants altogether.
Screening your prospective tenants
As a landlord, you should take every precaution to ensure you don’t end up with a difficult tenant. This starts with getting references and checking backgrounds. If you use a letting agent these should all be taken care for you. When you’ve settled on a tenant, you need to check their background and perform a credit check. Take your time and don’t be rushed by the tenant.
Many experienced landlords will develop a gut feel about a tenant – experience will tell them if someone is not to be trusted, but you can’t rely on instinct alone; you need firm evidence.
As an experienced landlord, Paul always asks for three months’ worth of bank statements.
This answers a lot of questions such as: how much are they earning? When do they get paid? Were they able to pay last month’s rent? Do they have any utility bills they are paying? If they are not willing to give you this information it begs the question: what are they hiding?
If they are employed, do a search on Google to check the company exists; you might even want to call the employer to check they really work for them. It’s a question of getting all your ducks in a row and making sure they are a legitimate tenant.
As a landlord, you must also perform checks into their legal status to see if they have the right to rent; you will have to see their passport or their ID. If they are here on a VISA you will have to see that and if it runs out during the tenancy that’s another complication because you will have to perform these checks again. As a landlord, this is now your responsibility. If you don’t fulfil your obligations you could potentially be fined up to £3,000 by the Home Office.
If the tenant has a guarantor, you will want to check their references because if the tenant fails to pay the rent this is the person you will be chasing. Most of all, don’t be hasty, take your time. Run these checks before you hand over the keys.
The very worst kind of bad tenant who repeats their behaviour multiple times. This is why it is critical to perform the necessary checks and Google searches. These tenants prey on naïve and first time landlords and know the law back to front. They come from all walks of life: Paul has seen people who are lawyers, financial advisors and even English teachers. The worst was a man called Anthony Alexander who cost six landlords a combined total of £143,000. Paul exposed him on a BBC show called Inside Out.
It’s important to remember that it is not only tenants who can be a problem. Many landlords end up complaining about agents.
When you work all day, it can be difficult to manage a property – the last thing you want to be doing is fielding a call about a problem with the boiler when you have to be up for work the next morning, so agents perform a useful function. However, there are some scurrilous players out there who will provide a poor service and effectively steal your money. Make sure they are certified by a professional organisation such as ARLA or the NAEA.
There are also some rogue landlords out there who give the rest a bad name. If a tenant complains about disrepair, a landlord has 14 days to reply and indicate when they will do the work. If nothing is done and you ignore it the tenant can contact the council and they can serve an improvement notice on the landlord. If this happens, you cannot serve a Section 21 Notice.
Deposit protection and disputes
One of the best pieces of legislation in recent years has been the Deposit Protection Scheme – it has reduced the number of spurious claims being made and has done much to free up time, but this is one area where you need to know your obligations, as well as your rights.
You must use a deposit protection scheme and move the funds within 30 days. There are two kinds; one is custodial which is a third-party account; the second is an insurance-backed scheme, so if there is a problem you are covered. You must get this right – if you don’t move the deposit into a protection fund, you will not be able to serve a Section 21.
You must establish a robust inventory at the outset – this is your evidence of what state the house was in when you let it out. The biggest problems come with arguments about cleaning and damage. Take an inventory – this will all be sent to the adjudicators to make a judgement.
Don’t regret non-compliance
Compliance is a growing burden for landlords. After the Deregulation Act of 2015 there is a whole bunch of stuff you need to comply with before moving in. Gas safety, the HMO Certificate, electrical performance certificates, smoke alarms and a How to Rent guide. This all needs to be served. If you don’t you won’t be able to serve a Section 21 notice.
There is now a new Section 21 notice called a Section 21-6A, which is much easier to use and all you must do is give two months’ notice, but be warned you can only serve this for tenancies which started after October 2015. If you have an agreement which has not been renewed since the new law, the old rules will apply. This will all join up after October 2018.
It’s a good idea to get to know your neighbours. They will be your eyes and ears. If there is a problem, such as anti-social behaviour, sub-letting or even worse, they can tell you. Running brothels or dealing drugs from a rented property can and does happen.
When it all goes wrong
Finally, if things do go wrong it’s worth knowing your rights. If there is more than two months’ worth of rent arrears when you go to court, it’s a mandatory Ground 8 which means the judge must grant a repossession order. If it is less than two months, it is down to the judge’s discretion. If there are no rent arrears you can serve on discretionary grounds such as a breach of tenancy. But these are weaker and you will need evidence.
It’s a good idea to use a six-month break clause because then you can always serve a Section 21 which is a non-fault notice and you don’t have to give a reason. You can’t claim for rent arrears under Section 21, but there are landlords who choose to go down this route because it’s easier.
Thankfully, stories such as these are relatively rare. For all its challenges, being a landlord is still an excellent long-term investment, but there are people out there looking to take advantage of naïve landlords. To avoid the nightmare of a problem tenant, do your homework, be prepared and make sure you know your obligations. If you don’t understand the law, or don’t have time to put in the work, make sure you have someone who does. A good agent and some expert help can be worth their weight in gold.
At Howsy, we give landlords peace of mind by running rigorous checks on all prospective tenants and performing regular inspections; our deposit protection system is audited as part of our membership to ARLA/Propertymark. Our ARLA qualified property experts are there to oversee every step of the process, and make sure your landlord experience runs smoothly.