Rental properties: what happens when tenants don’t pay?
Rental properties are an excellent source of income if you need extra money, want to pay off your mortgage faster or save for your retirement… unless your tenant doesn’t pay their rent. If this happens, property lawyers advise you to take a deep breath and follow the appropriate steps to get rent payments back on track. These are the steps you need to take.
1. Act early
Your tenancy agreement should state how and when rent should be paid. Make sure you regularly check to see if payments are being made and keep good records. The earlier you intervene with payment problems the better. Contact your tenant to find out why they missed a payment and to arrange a payment plan. If your tenant still doesn’t pay, move on to step 2.
2. Notify your tenant in writing
Tip: most people have email now, so make sure you get an email address from your tenant when they sign the tenancy agreement.
If you have an email address for your tenant, you can send a 14-day notice to remedy letter by email. This notifies your tenant they have 14 days to pay the overdue rent. If you request a read receipt, you’ll be notified when the email has been opened. Otherwise, send a letter.
3. Mediation and hearings
After 14 days, if your tenant still hasn’t paid their rent arrears, or if they are now more than 21 days behind, the next step is to apply to the Tenancy Tribunal for a mediation.
A mediator will aim to reach an agreement between you and your tenant to pay the overdue rent. If achieved, the mediator will issue an order documenting the discussions. You can request to have the order ‘sealed’, which allows you use the Ministry of Justice’s enforcement process if your tenant still doesn’t pay.
If mediation doesn’t result in an agreement, the matter may be referred to a hearing where an adjudicator will hear and consider the case before making an order. Considerations include the reasons for missed payments, your tenant’s financial position and to ascertain whether your tenant will pay their overdue rent. The order will set out your tenant’s payment obligations, initiate a possession order for your tenant’s eviction or both.
4. An alternative: FastTrack Resolution
You can make an agreement with your tenant about rent payments using a FastTrack Resoultion. The FastTrack Resolution process has the advantage of allowing landlords and tenants to make their own formally recorded, binding and enforceable agreement without having to attend mediation.
This is an online process formalising the amount of outstanding rent, how it will be paid, the dates for payment and the consequences if any payments are missed. You will need to notify your tenant if you are going to have the agreement formalised through FastTrack.
When a mediator receives the application, they will contact your tenant to ensure they understand and agree to all conditions. The mediator will then formalise and record the agreement in a mediator’s order and notify you and your tenant that an agreement has been made.
5. What happens if your tenant breaches an order?
If your tenant doesn’t follow the conditions of the order made by a mediator or the Tenancy Tribunal, the next step is to apply to the Collections Unit of the Ministry of Justice to get the order enforced. The Collections Unit create an attachment order which requires your tenant’s employer to deduct a specified amount from their wages and pay that amount directly to you.
6. Last resort measures
If the situation becomes too difficult to resolve, you can apply for a possession order. A possession order requires your tenant to vacate the property. If they refuse to do so, you can apply for an eviction warrant. If approved, this warrant allows a court bailiff to return possession of the property to you.
7. Stick to the process
Chasing unpaid rent doesn’t need to be a stressful task. Stick to this process and you’ll avoid a lot of unnecessary work and wasted time.