How not to be treated as a source for cheap credit

by Steve Masters

22:01 PM, 8th August 2013
About 7 years ago

How not to be treated as a source for cheap credit

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How not to be treated as a source for cheap credit

We landlords are not in the business of lending money to our tenants but that is in effect what we are doing when they run up rent arrears.How not to be treated as a source for cheap credit

The trouble is it is far easier for someone NOT to do something than it is to DO something, ie it is far easier NOT to pay rent than it is to borrow the money from someone who is in the business of lending e.g. a bank. What’s more, unless we have a very good system in place the penalty for running up arrears is very small and the consequences very far away, i.e. at least six months to evict.

I need to improve my system.

Not only shall I start to issue formal rent demand notices, first a polite reminder, followed by a stronger letter then followed by the appropriate action.

I would also like to introduce a financial incentive so that tenants pay me before they spend the money on something else. Unfortunately the poultry “base plus 4%” interest rate that is the acceptable standard is very little incentive and other fixed fees are very difficult to enforce. So I am thinking of introducing a *prompt payment discount*.

I would like to put the rent up by a reasonably significant amount, say £10 a week and offer a prompt payment discount of the same amount. Then each week a tenant is in significant arrears it will cost them £10, that should make them realise that it’s not a cheap loan any more.

Has anyone used this method?

How did it work?

What wording did you use for a clause in the tenancy?

In addition to writing this into all new tenancy agreements from now on I would like to try and introduce this to existing tenancies. I can put the rent up with a formal Section 13 rent increase notice but I doubt I could include a discount clause as this would in effect create a new version of the tenancy with all the ensuing complications. How can I introduce the discount? Can I put something in writing outside the Section 13 notice or would this too change the existing tenancy? Can it be left as an unwritten gentlemen’s agreement?

If we work together on this we can build a better system for us all.



Comments

r01

8:00 AM, 9th August 2013
About 7 years ago

Currently, I do something that works very well for me.

I have an old terraced property that used to suffer terrible lifestyle moisture problems. To address the issue I came to an agreement with the tenants that if they agreed to address the lifestyle issues and leave the heating on low at night during the three coldest months of the year (Dec, Jan, Feb), I would contribute 20% toward their gas bill on condition their rent is not in arrears, which I confirmed in writing. They send me the bill, I check their rent is fully paid then immediately forward payment so they can pay their bill promptly. If they don't pay their bill it is the energy company that loses, not me.

Perhaps you could increase the rent by £xx and offer to pay a specific sum toward their winter fuel bill provided their rent is not in arrears, showing with fuel poverty in mind, that you are a concerned and socially responsible landlord.

I have never had any arrears since I started doing this.

R

Steve Masters

13:42 PM, 9th August 2013
About 7 years ago

Reply to the comment left by "r01 " at "09/08/2013 - 08:00":

I can see how this could work quite nicely, it would help solve your damp problem, help keep rent up to date and as it is about the gas bill and not the rent itself it would not alter the existing tenancy agreement. Nice one.

I'll bear it mind for my flats but I still need a solution for my HMO's where I already pay all the bills.

Thank you for your comment.

Steve.

r01

21:29 PM, 9th August 2013
About 7 years ago

How about splitting the inclusive rent into rent and bills elements on the HMOs then you could do the same thing.

R

Steve Masters

10:27 AM, 12th August 2013
About 7 years ago

Reply to the comment left by "r01 " at "09/08/2013 - 21:29":

Has anyone else had experience of splitting out bills and rent in an HMO and/or offering a discount for prompt payment?

When I realised I was by far the cheapest and easiest source of credit for my struggling tenants I thought a prompt payment discount would be an ideal solution, I'm surprised I haven't had more replies. Is it not a good idea then?

David Sweeney

22:04 PM, 12th August 2013
About 7 years ago

Reply to the comment left by "Steve Masters" at "12/08/2013 - 10:27":

I am not legally trained but I think, if the matter ended in court, a lower-court judge would consider your 'true' rent to be £10 lower and this was an artificial construct to get around the 'penalty' rules. Having said that, you'd probably only have to test it in court if, for example, it was for a section 8 hearing AND the tenant raised that as their defenc


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