Tenant default is usually a residential property manager’s biggest headache.
The best way to solve the problem is to avoid it entirely, through careful screening and prompt action as soon as arrearages begin to accrue. Nonetheless, care and diligence are not a perfect guarantee, and defaults happen. So what comes next when a tenant doesn’t pay the rent?
In NSW, default is covered by the Residential Tenancies Act 1987, and set down in the Tenancy Handbook. Other states have similar resources, readily available online.
They have several basic elements in common. First of all, of course, the property manager must decide whether it would be better to keep the tenant or end the relationship. If eviction is the best course, there will be notice requirements, an opportunity for a hearing, and a process (which is not always effective) for recouping arrearages and damages.
Is it better to keep the tenant…?
If the tenant has a good track record and is encountering temporary difficulties, it may be worth trying to rescue the tenancy, especially in times of rising vacancy rates. Realistically, though, this situation is the exception rather than the rule.
One option may be to establish a direct debit arrangement. Centrelink offers a free direct bill-paying service (called Centrepay) to customers receiving payments from Centrelink.
Another technique may be a written repayment plan, signed by both parties, under which the tenant will resume normal payments while paying off the arrearage as promptly as possible. This document should be reviewed by legal counsel as it may become the basis for deferred legal action.
More likely, your next move is to serve a written termination notice. The form of this notice, manner of delivery and timing are extremely important and differ from state to state, so check with local authorities. This often produces the rent and may serve as the impetus for a repayment agreement. Many property managers choose to lodge a hearing before the appropriate state tribunal at the time notice is given as a way of expediting the process if payment is not forthcoming.
The tenant doesn’t pay and doesn’t leave
This is the worst scenario and suggests a more complicated situation than mere non-payment of rent. At this point it may be wise to pursue free tenancy complaint services in order to resolve the dispute. In NSW, Fair Trading offers this as an alternative or a precursor to a hearing before the NSW Civil and Administrative Tribunal.
A hearing before a formal tribunal in any state may ultimately lead to the eviction of the tenant, though this is likely to be a very drawn-out procedure and should be avoided wherever possible. Under no circumstances should a property manager act to forcibly evict a tenant without legal process.
Seeking payment from a skip-out
With a tenant’s full name, date of birth and employer information, you may be able to trace a skip-out tenant, but the hunt may be pointless if the tenant has few assets. It is far better to act immediately when arrearages first accrue or damage occurs. By all means, however, make sure that the tenant is listed on the national tenancy database so that future landlords do not suffer the same harm.
Tenant defaults are an unfortunate fact of life. As a property manager, you have several tools at your disposal to reduce the financial damage that a bad tenant may cause. But nothing is quite as good as prevention, so continue to screen and interview carefully, and act swiftly when trouble looms on the horizon.
About Rolf Howard, Managing Partner, Owen Hodge Lawyers
Rolf is managing partner of Owen Hodge Lawyers. He has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992. Rolf focuses on assisting clients to proactively manage legal responsibilities and opportunities to achieve competitive advantage. Rolf concentrates on business planning and formation, directors’ duties, corporate governance, fund raising and business succession. His major interest is to assist business owners and their financial advisers plan and implement strategies to build and exit from successful businesses. www.owenhodge.com.au