What to do when your tenants don’t pay

What to do when your tenants don’t pay

We are in a time full of uncertainty as a lot of people are not able to work due to the Covid-19 virus and the social distancing rules we must engage in. Many renters face financial challenges of pandemic-related business shutdowns, furloughs, layoffs, and stay-at-home orders. As a landlord, many of these affected workers are renting from you. 

What do you do when they don’t pay? You can’t just be nice and don’t make anyone pay rent unless the government changes something. 

Landlords are people just like you and me — they have rental property and try to manage them while also working a job or running a business. Landlords won’t be able to pay the bills on the property long-term if they don’t receive rent from tenants. So, they need to come up with a strategy for dealing with late or missing payment. 

When rent suddenly stops to come in, you as the landlord might feel nervous and that’s normal, but don’t panic. Work something out. 

Before jumping to drastic measures, it helps when landlords try easier and more amicable resolutions.  Try the following suggestions on how you can mitigate the financial impact of tenant defaults during such a crisis. 

Terminations and Evictions Is Not the Solution

Under normal circumstances you have the option to terminate or evict the tenant — you serve him or her with either pay rent or quit notice, or unconditional quit notice, dependent on the applicable laws. However, this is not the solution due to health and safety concerns due to the Covid-19. 

Many states, cities, counties, and courts have placed moratoriums on evictions. Some have placed a ban on any and all activity that relates to evictions, while others simply postpone hearings on evictions until the court can arrange a hearing via telephone or video. 

You might still be able to file eviction papers with the courts, but your case may not be heard for a while. On the other hand, if you evict tenants who are not able to pay due to the pandemic crisis you will appear as a ruthless landlord who terminated tenants in the middle of stay-at-home order. 

Also, you will have to disinfect, advertise the rental, screen new prospective tenants — which they are few, and sign again to have new tenants move in. It will be hectic to abide by these emergency guidelines, and health and safety measures.

Instead, opt for the following measures:

Document Communication in Writing

Even the best tenants are likely to experience periods of financial difficulty in this crisis. Your tenant should reach out to you and explain what the cause is for not paying rent. Also, make an attempt to reach out to your tenant. 

The communication between the two of you is the key and should be written down every time it happens. When you get everything written down, you not only hold your tenant accountable, but it will also help as an important legal record should an eviction case be necessary. 

When you document your communication with the tenant, it also gives you a clue to the answers for the following questions:

  • Are your tenant’s finance difficulties temporal?
  • Does the tenant understand how serious the situation is?
  • Does the tenant payment history indicate he or she paid rent on time?

Those questions will help you know about what’s to come so you are prepared. If the answers to all of those questions are NO, that’s a big indicator its best to evict your tenant and replace him or her with a better tenant. 

Mitigate Your Own Financial Situation

Take stock of what could happen in a worst-case scenario. You may have considered a situation where tenants don’t pay rent on time. But this is a different situation (the Covid-19 crisis) — what will happen if your tenants don’t pay for a long time, and your options to find new tenants are slim?

Assess how this worst-case scenario will affect your ability to pay your mortgage and other bills on your property. This will inform you how to best respond when your tenants don’t pay for a long time.

  • Your financial situation looks grim

If your ability to pay bills on your property hinges on a month-to-month rental income, you need to take action to prevent your own default. You should contact your lender and actively engage with tenants for arrangements that allow them to make at least partial payments.

  • You have a few months reserve

Will your company and personal reserves won’t feel too much of a pinch if tenants aren’t able to pay for a while? If you have tenants whose history of payment has been good and simply find it hard to pay because of the current situation, find ways to take some pressure off them. 

Work Out a Temporary Solution with Tenants

How desperately do you need to receive income from your rental? Work out a temporal agreement with tenants. The following arrangements are possible:

  • Postpone rent

Offer to postpone payment for a while, with an agreement that it will be repaid.  The repayment arrangement could state that the rent owed would be spread out over time, paid all at once, or paid with (if) a stimulus check.

  • Reduce rent

You can reduce rent temporarily that enables you to meet your bills, but forgoes for the time being.

If you decide to evict a renter, rules vary by jurisdiction, but in most cases — due to the pandemic crisis, you may have to wait through a lengthy court process.

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