Rent Arrears: How to Tackle the Industry’s Worst Enemy

Rent arrears without a doubt, is one of the most common and frustrating challenges property managers face. It’s time-consuming, repetitive, and can be incredibly disheartening. After all, how hard can it be to pay the rent on time? Any property manager who tells you they’ve never had a tenant in arrears is, quite frankly, not being truthful. 

The reality is that rent arrears are an industry-wide issue that does not discriminate. It affects properties across all postcodes and price points. You can have the best intentions, boasting about a “zero arrears policy” to both tenants and owners, but that all crumbles the moment a tenant decides to withhold their rent. Yes, we used the word “decides” because that’s exactly what happens. In over 90% of cases, tenants haven’t “forgotten” to pay their rent, they have decided not to, just like they may decide to skip a bill, insurance payment, or car registration. 

The Good News: It’s Often Only Around 10% of Tenants Who Are Repeat Offenders 

Here’s the silver lining, most property managers will tell you that less than 10% of tenants cause the majority of rent arrears problems. We’re talking about the repeat offenders who continuously fail to pay their rent and then come up with the same excuses you’ve heard a thousand times before. These tenants sometimes think they’re being creative or convincing, but in reality, they’re just continuing a bad habit that has often been allowed to continue in their previous tenancies. 

The 3 Types of Arrears Offenders 

1. The Genuine Offender 
   This tenant has encountered a major upset in their life, such as a family crisis, loss of employment, or unexpected financial hardship. They will likely reach out to you and be upfront about their situation. They’ll explain why the rent is late and offer a plan to resolve the arrears as soon as possible.

    

2. The Ostrich 
   Much like the Genuine offender, this tenant may be experiencing significant personal issues. However, unlike the Genuine offender, the Ostrich tends to bury their head in the sand. They avoid communication and ignore the issue, all while the arrears continue to climb. In many cases, they’re simply too overwhelmed or embarrassed to address the situation head-on.

    

3. The Entitled Offender 
   These tenants can be the most difficult to deal with. They operate under the belief that landlords are wealthy, with multiple properties, and have no real need for the rent money. They may think they can just pay when they feel like it because the landlord can wait. These tenants often have a history of avoiding rent payment responsibilities, which can make them one of the most dangerous and time-consuming offenders. 

How to Handle Rent Arrears: The First Step 

The first thing you need to do when dealing with rent arrears is to identify which type of offender you’re dealing with. The approach you take will differ depending on whether you’re facing a Genuine offender, an Ostrich, or an Entitled offender. 

If it’s the first time a tenant has fallen behind, make sure to contact them directly. Phone calls are often more effective than text messages, which can be easily ignored. If the tenant doesn’t answer, leave a polite voicemail expressing your concern. Let them know that the missed payment is unusual, you’re concerned and here to help them get back on track. 

Always keep detailed records of your communication with the tenant, as this will be crucial if the situation escalates. As soon as rent arrears reach the point where a breach notice is necessary, make sure to inform the property owner promptly. Keeping your owners in the loop ensures they are aware of the situation and helps you avoid an uncomfortable conversation when the rent has not arrived. 

The Importance of Written Instructions from Owners 

When dealing with arrears, always get your owners’ instructions in writing. If they refuse to allow breach notices or notices to leave, get it in writing. This is particularly important for insurance purposes, as an owner’s decision to not issue a breach notice may affect their ability to claim under their landlord insurance. 

It’s also vital to re-educate your owners about the importance of timely rent collection. Some owners may have a misguided belief that keeping a tenant, even if they’re in arrears, is better than having an empty property. As a property manager, it’s your responsibility to educate them. It’s far more cost-effective to remove tenants who consistently fail to pay on time and find new tenants who will maintain a steady payment schedule. 

Payment Plans: Put It in Writing 

If the tenant offers a payment plan, ensure it’s put in writing and signed by the tenant. While it’s not always guaranteed they’ll stick to it, a signed agreement clearly communicates the seriousness of the situation and the expectation of repayment. 

Handling Repeat Offenders 

For repeat offenders, it’s time to enforce boundaries and re-educate the tenant about their responsibilities. If you’re dealing with an Entitled or Ostrich offender, issue breach notices on a regular basis, even weekly if necessary. If you’re at the point where a Notice to Leave needs to be issued, don’t hesitate. If a tenant has reached this point, it’s time to have an honest conversation with your owner about the necessity of removing them from the property. If you don’t act quickly, the tenant will continue to disregard the notice. 

Taking Action: The QCAT Process 

Once you’ve issued the Notice to Leave and it has it expired without resolution it’s time to seek owner’s consent, and it’s time to consider applying for an urgent hearing with the Queensland Civil and Administrative Tribunal (QCAT) for a Warrant of Possession. This will send a strong message to the tenant that you won’t tolerate further rent arrears. 

Should the tenant fail to pay and the matter proceeds to QCAT, in most cases you will be awarded a Warrant of Possession. This allows you to regain possession of the property, and at this stage, communication with the tenant often ceases entirely. The warrant will be enforced within 14 days, with local police setting the date and time for the eviction. 

Once the eviction is completed, it’s time to clean up and relet the property. Hopefully, with a new, reliable tenant who understands their obligations. And engage debt collectors to recover the outstanding funds, that’s where we can help 😉 

Conclusion 

Dealing with rent arrears is never an easy task, but with the right strategy and a clear approach, property managers can navigate these challenges more effectively. Remember, understanding the type of tenant you’re dealing with, maintaining clear communication with your owners, and taking swift action when necessary, can help minimize the impact of rent arrears and protect both your business and your owners’ investments. 

In the world of property management, the more proactive you are in addressing arrears, the better your chances of maintaining a smooth and profitable rental process. Happy managing!  

If you wish to discuss any point’s addressed here or have any questions, please do not hesitate to reach out me shondi.hardman@barclaymis.com.au – 0488 734 365. I’m here to help 😉