According to the government’s latest English Private Landlord Survey, almost half of landlords only own one rental property, making them particularly vulnerable to rent arrears. These small-time landlords – many of them ‘accidental’ landlords – may rely on the rent to pay their mortgage or even meet their own rental payments. Even landlords who hold larger portfolios will rely on the rents as their income. In both cases, tenants in arrears can be a huge drain on their finances.
A survey by the National Residential Landlords Association showed plenty of evidence of landlords helping tenants out where they can, with rent reductions, rental holidays and more, but that report was published over a year ago and such concessions clearly cannot continue indefinitely. Landlords need to make a living and pay their own bills, too.
But although there is now light at the end of the tunnel for landlords, the end of the ban is, unfortunately, no magic wand that will make tenant problems disappear overnight.
If a tenant in England has stopped paying rent, for instance, to serve a Section 8 notice landlords must still give four months’ notice if there are arrears of less than four months, although this is changing to two months’ notice from August. If the tenant has missed four or more monthly payments, a shorter notice period of four weeks may be given.
With luck, the tenants will leave by the specified date. But if they don’t, the landlord will need to apply to the courts for a possession order. Even in normal circumstances this is by no means a quick process and any errors in the paperwork can cause further delays, so it’s a good idea to use a specialist company. Plus, after 15 months of no evictions, there is sure to be a backlog of cases for the courts to deal with which will lead to a bottleneck. The courts can only work through them at their usual pace, so landlords could find themselves housing their problem tenants rent-free for many more months – all the while continuing to foot the bill for the mortgage, insurance and maintenance costs.
Few landlords can afford such delays so may wish to consider cutting their losses and selling the problem property by auction. This may feel like passing on the problem to the new owner, but the process is fully transparent with all rental information documented in the legal pack to ensure buyers understand what they are taking on.
Even with potential tenant problems, tenanted properties are attractive to auction buyers as they are already rental ready. The property should already be compliant with the various health and safety regulations, meaning the new owner only has to consider future maintenance rather than a potentially lengthy and costly preparation period.
Across the UK, more than 2,000 tenanted properties were offered for sale by auction in 2020 and every month at SDL Property Auctions we sell tenanted properties in our live-streamed Auction Events and daily Timed Auctions on our website.
We have found that there will always be investors ready to take on a tenanted property; even one with problems such as arrears. In fact, where the relationship between tenant and landlord has broken down beyond repair, sometimes a change of hands can break the deadlock, getting the rent flowing again and resolving the issue.
Arrears are not the only reason to sell a property. Wise investors will always look ahead and a landlord may foresee problems obtaining the rent in future, if a tenant is furloughed for instance. The furlough scheme has been extended to the end of September but after that it’s a sad fact that not all tenants will have a job to return to. And, if not, how will they pay their rent?
A sound strategy for landlords with tenants who were already giving them problems before the crisis began – or who are concerned they will be unable to pay their rent once the furlough scheme ends – would be to consider selling now to capitalise on the buoyant auction market. In the case of part-time landlords with just one or two properties, this will not only protect them from the possibility of future arrears but could also provide them with a financial buffer in case their own jobs become at risk.
Auctions provide a fast, transparent and secure sale for the best price – and demand is currently high so now is a great time to sell. Sellers can always reinvest in the future, starting afresh with a clean slate.