Can I charge tenants for extra admin if they are in arrears?

by Readers Question

15:15 PM, 22nd April 2013
About 7 years ago

Can I charge tenants for extra admin if they are in arrears?

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Can I charge tenants for extra admin if they are in arrears?

Can I charge tenants for extra admin if they are in arrears?Following the news from Property118 last week regarding “no win no fee” debt collection for landlords I have been re-thinking my strategy. I have a question though, can I charge tenants for extra admin if they are in arrears?

This is my thought process.

I prefer to manage my own properties. I do use an online letting agent to advertise my properties and for tenant referencing but I also like to deal directly with my own tenants. I don’t see the need to pay a letting agent somewhere between 8% and 15% of my annual rent roll. Sometimes I purchase RGI, sometimes I don’t, I take a view and generally my gut instincts are right.

Now let’s assume I have a tenant who misses a payment and it’s not one of the tenancies I’ve protected with RGI.

What I’ve been considering is whether I could call, text, email them and then if they have not paid up within a week, refer the case immediately for debt collection. I appreciate that it will cost me 15% to recover any arrears if I do this (I’d pay the debt collectors nothing if the tenants don’t pay up of course) but it would save a lot of stress and worry and de-personalise the communication between me and the tenants. If the tenant pays up that’s great, but can I pass on the recovery charge to them and if so, do I have to have a special clause in the AST? If I do, can anybody provide the wording for the clause I would need to use please?

I have already instructed the Property118 debt collection team to chase some historic debts and, as a result, I now have a much better idea how it works. Basically, it’s a 21 day cycle. Therefore, if I instruct debt collectors a week after the rent payment was due, by the time the debt collection cycle has passed, the next rent payment would be due. At this point I would then be able to keep the pressure on by serving section 8 and, assuming the tenancy has gone periodic I could also serve section 21 simultaneously. That seems to me like the fastest way to jump on any arrears problems and gain possession and a money order based on rent arrears.

After I have got the money order I could, of course, re-visit debt collection options for recovery.

The only question I really have is whether I can pass on the costs of debt recovery to tenants who pay late. If so, that’s my new strategy.

It seems to me to make a lot more sense to instruct debt collectors sooner rather than later. It shows tenants that arrears will not be tolerated and is far better than chasing them up only when things get too bad. If they do pay up and also cover my costs I will probably work on a three strikes and you’re out basis, otherwise I think I would just allow them stay on, subject to respecting the properties and the neighbours of course!

I appreciate your readers advice and responses.

Thanks – Alun

Editors Note

The article to which Alun is referring to in respect of “no win no fee” debt collection can be seen by clicking THIS LINK 



Comments

Mark Alexander

15:23 PM, 22nd April 2013
About 7 years ago

That's a really interesting question Alun and I'm not sure of the answer. Basically you would be passing on the costs of recovery action as opposed to charging for admin wouldn't you? Something in the back of my mind tells me this could be looked upon as you issuing a fine though and I also have a sneaking feeling that might not be allowed and could constitute an unfair contract. However, I'm really not sure of my ground on this one so I have invited some industry experts to share their knowledge.

If what you are suggesting can be done I may well be copying your new strategy myself. It seems to make a lot of sense, especially the point you made about de-personalising the issue and making it very clear that you will not tolerate arrears of any nature.

18:58 PM, 22nd April 2013
About 7 years ago

I think once you have designed a strategy; this would be stated on any subsequent AST.
This would leave tenants in no doubt as to the recovery process.
If you have RGI you effectively have 3 strikes.
This for rent paid in advance would man that after 2 rental months and 1 day the tenant is 3 months in arrears.
My RGI policy gives me 90 days to submit a claim.
If you wish to give the tenant opportunity to pay before you submit a RGI claim you could.
It would be up to you how much forbearance you would allow.

Jonathan Clarke

9:18 AM, 23rd April 2013
About 7 years ago

Yes if its in the contract they sign up to ( the AST ) then you can charge for it is my view . As long as it doesnt fall foul of the law and becomes contrary to the Unfair Contract Terms Act.

If Bank of Ireland customers can lose hundreds of pounds due to BoI`s disgraceful action in suddenly raising their SVR rate by invoking one of their special conditions - then charging a bit extra for a legitimate recovery expenditure is fine, The FSA takes no action against BoI for their seemingly unfair contract so I`m sure individual landlords charging a small fee for recovery of debt is not an issue.

Many big institutions charge £20 here £20 there for writing a simple letter or pressing a button on a keyboard so write it on the AST draw their attention to it before they sign on the dotted line and invoke the clause if and when the need arises. Tenants cant say then they havent been warned.....

10:21 AM, 23rd April 2013
About 7 years ago

Hi Alun,
Charging the cost of collection is pretty normal in all debt situations and is certainly acceptable in the event of a moneyclaim through the courts for rent arrears etc. I also have an admin charge in my AST for 'missed payment letters' I send to tenants. The key is show your charges in the AST and they must be reasonable in amount.

13:16 PM, 23rd April 2013
About 7 years ago

Interesting question Alun. Yes it's quite common for you to charge tenants for extra admin fee if they in overdraft. It's important that you state this within the Terms and Conditions on the contract, as you can always go back on it.

Eleanor White

14:18 PM, 23rd April 2013
About 7 years ago

Hi Alun,

As others have commented, if it is in your AST and it is a reasonable cost then there should be no reason why you cannot charge this back to the tenant. Here at The Online Letting Agents we use this phrase in our AST - "If the Tenant is in breach, he acknowledges that he may be liable to pay reasonable costs incurred by the Landlord". Clearly the tenant is in breach of their contract if they are in arrears. You may want to expand the point by mentioning that this may include, but is not limited to, the issuing of letters and notices, instructing debt recovery agents etc etc.

Hope that helps!

Eleanor

James Gordon-Johnson

13:13 PM, 24th April 2013
About 7 years ago

To comply with The OFT rules ensure you have a contract, policy or terms and conditions in place that allows for the addition of fees to the consumer debt. The OFT will prohibit such action unless this is in place and therefore we as a debt collection agent would be unable to pass our charges on to your customer for historic debts.

John Frith

12:23 PM, 25th April 2013
About 7 years ago

I've not used any of the debt collection agencies mentioned on this site recently - I don't have any UK arrears at the moment, and I'm put off by the trace fee for historic debts.
However it seems from the posts here that it would be preferable for the debt collectors to add their fees to the amount they are chasing. It obviously makes sense to add something to the contract stating this might happen, but isn't it the norm that collection costs are added to the debt in all sorts of situations - private parking charges springs to mind, without prior warning?

Mark Alexander

12:33 PM, 25th April 2013
About 7 years ago

@JohnF - it's a good point you make. I've just had a successful trace come back and I have asked for my claim to be increased by £69 + VAT which is the trace fee plus the 15% collection charge.

The 21 day process starts now so it will be interesting to see what happens.

In truth I may be taking a bit of a flyer as I don't have a clause regarding collection charges in my AST. However, as you rightly point out, fees are added to collection bills as a matter of course by most collection companies so it may well just be taken for granted that fees need to be paid by my debtor. Only time will tell.

To be honest, anything I get back will be a bonus and it's worth £69 + VAT to me just to know that they will be getting letters and phone calls which will no doubt make their lives a little less comfortable - not that I hold grudges of course 😉

John Frith

15:03 PM, 25th April 2013
About 7 years ago

Alun, as you've raised the prospect of referring current tenants to debt collectors, how will this affect ongoing rent payments. Let me give an example.
Rent is £500pm. Tenant loses job and starts paying £400pm. You refer to agency with £200 arrears. Next rent due date, tenant pays £200 arrears to agency (who pay you £170), and £200 to you. You've just lost £30!

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