Effectively Managing Rent Arrears

Blogger: Michelle Williams, managing director, @home Property Management Solutions

In a perfect world we would love to think every tenant is responsible enough to pay rent on time, actually, a high percentage of people are reliable. However, things can turn bad very quickly when circumstances change with your tenants, changes such as job loss, new occupants, mental illness or even death of a tenant. You must be prepared for every possible scenario.

Set the standards and expectations

Often property investors and in some cases property managers are too trusting and often ignore minor rent arrears rather than having to deal with confrontation. This generally leads to repeat behaviour and often results in more serious concerns down the track. The expectation should be set from day one in the lease sign interview. Let them know that there is no such thing as friendly reminder notices. If no communication is made, late rent will instantly affect their rental history records and a formal notice will be issued. You are the one setting the standard and expectations, so if you do nothing, you give permission and set the trend.

Never lose track

I have seen so many circumstances where investors and property managers completely lose track of the rent payments, months later they get tired of the late rent and eventually try and fix it. After such a long period, this can be a major challenge. When you try and explain to the tenant how and when they fell into arrears, it usually leads to dispute and the question of “why have I not heard anything until now, I have always paid every third Friday”! Sifting through bank statements or ledgers with the tenant trying to help them understand is not a simple process.

Control the income like a business

If you are self managing your investment you must treat rent collection like a business, you would not tolerate a contractor not paying you for your service and it should be the same with rent payment. Keep a very close eye on rent collection and always action late rent payment immediately. If there is a reason for the delay and you accept an arrangement, make sure it is in writing and that you still follow through with the appropriate formal notice (Breach or notice to vacate). This should have an option to stay if the tenant adheres to the agreement (unless you have issued 3 in any 12 month period). Each State has a different set of rules so make sure you are very clear on what your State Tenancy Act requires. You may think this is a harsh approach but if you have ever been through the process of vacant possession you will understand why delays cannot be afforded.

The “pink notice” syndrome

How many people do you know who wait for the”pink” notice before paying the power bill? Plenty right? You may even be guilty of it yourself? This is why you should never rely solely on sending standard notices and reminders such as letters, emails and texts without making sure you have a “call to action”. The written correspondence should only reinforce the phone calls explaining the urgency of the matter. Think about how you would prioritise a bill if you had a pile of them? which one would you pay first? From experience, it is generally in order of one that harasses you the most (by phone). I have also come to realise that people who fail to pay rent often fail to check their mail box! You need to be that person who keeps on calling until you get the results. If they stop answering the mobile, try calling work or the next of kin and leave a message that you need to speak with them urgently.

Keep you cool

There is a difference between harassment and completely ignorant. The number one rule is to keep your cool. Stick with the facts, listen and respond with a calm and professional manner. The moment you lose control of your emotions you lose respect and control over the situation. If the call gets heated let them know you will call back when they have had a chance to calm and consider the situation and understand you are trying to help them. Leave it 15 minutes and call back. Explain that you are really concerned about how this situation is going to affect them long term if they don’t work with you to get back on track. How will they ever rent in the future without good rental payment history? Empathise and support but don’t sympathise and apologise.

KPI’s

For the property management offices and principals out there, you should have best practice standards in place for rent arrears. Our office has a minimum standard of rent arrears being under 2% at all times. We reward portfolio managers for zero rent arrears and we meet weekly to discuss the KPI’s and any serious rent arrears concerns. Rent arrears should be a daily action without fail and every person on the list should be contacted and followed up as a matter of priority. ALL correspondence including calls should be recorded and documented. Remember this, if rent is not being paid, the business is also not being paid. If the business is not paid, who pays the employees? Principals, I strongly encourage you to have an audit system in place to monitor the action being taken to control arrears and at the same time reward best practice results.