What do you do when your tenant stops paying rent?

Managing a rental property can be incredibly rewarding, but it’s not without its challenges. One of those challenges is when a tenant stops paying rent, which can disrupt your financial plans, especially if you’re relying on rental income to cover mortgage payments or other expenses.

Has your tenant stopped paying rent? What should you do about it if they have? These are the essential steps you need to take and things to keep in mind as you navigate rental arrears.

Your rights and responsibilities

It’s important to know where you stand legally in these kinds of situations. There are two main things you need to be across.

Legal framework

Tenancy laws are different wherever you are, so make sure to familiarise yourself with the regulations relevant to you. In WA, the Residential Tenancies Act 1987 outlines the rights and obligations of both landlords and tenants. It covers everything from security deposits to eviction processes. Being across these laws will help you handle rent arrears legally and fairly.

Lease agreement

Your lease or tenancy agreement is the first line of defence when dealing with rent arrears. A well-drafted lease will cover all bases, including:

• Due dates and grace periods.
• Potential late fees for unpaid rent.
• Communication procedures and how you’ll contact the tenant.
• Consequences of continued non-payment (e.g. formal notice or potential eviction).

At this stage, it’s great to have an experienced property manager by your side as they will be familiar with your rights and how to handle rent arrears.

Step 1: effective communication

Good communication is always the best way to handle any conflict, but the way you communicate can also make a huge difference to the outcome. Here’s how to approach the situation with professionalism and empathy.

• Act quickly but calmly. As soon as you notice a missed payment, reach out to your tenant. It’s best to act quickly, but keep your tone calm and non-confrontational. A friendly reminder might be all they need.
• Choose the right method. Start with a polite email or a friendly phone call. Written communication can be useful for documentation purposes, but a phone call might feel more personal and less formal, especially when the issue is first noticed.
• Be clear and direct. Politely inform your tenant that their rent payment hasn’t been received and inquire if there’s been an oversight. Use language that shows understanding rather than accusation.
• Offer assistance. Let them know you’re there to help. Sometimes offering assistance or discussing potential solutions upfront can prevent the situation from escalating.

Life happens, so it’s important to actively listen to what’s going on for them, put yourself in their shoes, and respond in a way that helps maintain a positive relationship. Financial hardships can be incredibly stressful, so showing a bit of understanding can work wonders.

That said, it’s also important to document everything if things escalate down the line. Determine if the missed payment is a temporary issue, or if it’s a more serious, long-term problem; this will help you decide the best course of action.

Step 2: negotiation strategies

• Payment plans: If you’re in the position to do so, offer a flexible payment plan to allow your tenants to catch up on missed payments over time.
• Temporary rent reductions: For short-term financial hardship, you might consider a temporary rent reduction. This can help tenants get back on their feet while ensuring you still get some income.

A property manager can be invaluable in these situations. They bring experience and impartiality to the table, helping negotiate terms that are fair and feasible for both parties. They can also provide templates and guidelines to stream the process.

Step 3: issue a notice

If negotiations don’t work out, it’s time to escalate.

This means organising formal notices. Start with a Breach Notice that formally informs your tenant that they are in arrears. This document needs to outline the amount owed and give a deadline for payment. Generally, tenants have 7 to 14 days to rectify the breach.

If the breach notice period elapses without payment, send a termination notice. This notice ends the lease and requests that the tenant vacate the property. Clearly state the date by which the tenant must leave, the reason for termination, and the property address. Include a reminder that paying the outstanding rent will halt the eviction process.

Step 4: take legal action

Unfortunately, sometimes legal action is necessary. It’s important during this time to gather all documents, organise evidence, and follow guidelines. Your tenant may be ordered to pay the outstanding rent or vacate the property by a specific date.

Financial impact and management

Rent arrears can have a big impact on your financial situation, so it’s important to plan ahead if a situation like this arises. A contingency fund is a good idea; this will help you manage cash flow disruptions without resorting to high-interest loans.

Landlord insurance that covers rent default and property damage is also essential in providing some financial relief if a tenant stops paying rent.

How to prevent rental arrears

• Tenant screening: Thorough vetting and financial assessments are important when looking for tenants. Read our guide on how to find good tenants to ensure you get the best.
• Regular inspections: Make sure you check your property regularly to identify any potential issues early. Quarterly inspections are typically sufficient.
• Maintenance: Keep the property in excellent condition by addressing issues quickly. A well-maintained property attracts responsible tenants and justifies higher rent.
• Good communication: Keep an open dialogue going with your tenants. Building a positive relationship can prevent misunderstandings and disputes.
• Hire a property manager: An experienced property manager takes care of everything from tenant screening to rent collection to maintenance. By delegating these tasks, you save time and reduce stress. Plus, they know the legal landscape and can reduce the risk of costly disputes.

Manage tenant relationships with ease

Dealing with a tenant who stops paying rent can be a stressful and challenging experience, but with the right approach, you can navigate this situation effectively.

If you need expert assistance to ensure your rental property is managed smoothly and professionally, consider hiring a property manager. At Semple Property Group, we have the experience and expertise to handle all aspects of Perth property management, so you can enjoy peace of mind. Get in touch today!