What to do when your tenants don't pay their rent

As a landlord, receiving rent on time, every time, is one of your top priorities.

Finding out that rent hasn't been paid is never ideal. Perhaps your tenants told you the rent would be late, or perhaps it was an unpleasant surprise to see it missing from your bank account.

Either way, if the rent hasn't been paid you need to get on top of it quickly. No one can afford to have overdue rent affecting their investments.

Even though you've done all you can to choose the best possible tenants, sometimes the person's situation may change and rent can be missed. Everyone has a reason why this might happen, but as the landlord, it's important to have a plan of action for when this does occur.

Our team has created this guide to arm landlords with information and steps to take to help you manage and recover missed rental payments.

What is a breach and who is responsible for paying?

The Residential Tenancies Act 1986 (the Act) sets out the rights and responsibilities of people who enter into tenancy agreements. When someone doesn’t follow the rules, this is called a breach of the Act. Someone can breach the Act by not doing what they’re supposed to do, or by doing something they’re not allowed to do.

In a flatting situation, it is not uncommon for a group of individuals to rent a property. Flatmates may live together and pay the rent together. However, they are not part of the tenancy agreement. Your tenancy agreement includes only the person or people that have signed the agreement.

If your tenants let someone share the house, they are responsible to the tenant, not to you the landlord.

Because of this, it still remains your tenant's responsibility to pay all the rent, not just their share.

Day 1: Rent arrears

As soon as you realise your tenants haven't paid their rent, you need to communicate with them. This is the first step to take, before you begin to think about putting anything else
in place.

The best way to get in touch with your tenants in this instance is over the phone rather than by email or text. Find out what's happening and ask them how they plan to bring rent up to date.

If you cannot get hold of them over the phone you may consider sending a text message and an email, but try follow up over the phone again.

If your tenant confirms they will promptly pay the rent, it is still important to remind them it is not acceptable to have rent outstanding. By not paying their rent, your tenant has breached
their agreement. Advise them that if not remedied quickly, action may be taken to terminate the tenancy.

Day 3: Keep communicating

With payment still overdue, you may consider discussing a repayment plan with your tenant and allowing them to add an amount to their regular rent until the debt is paid. Whatever you both agree to, make sure you record it in writing.

By day three, if no payment has been made, send a reminder via text message, email and phone call. It is important to try every method of communication to ensure you have exhausted all means to contact your tenant and remind them of their obligations to bring their rent up to date.

Day 5: Issuing a second written reminder

There can be many reasons why rent has been missed – illness, redundancy at work, or a number of other unexpected situations.

Whether or not you have spoken to your tenant, if the rent hasn't been paid by day five, it is time to send them a second letter, called a ''notice to remedy''. The purpose of this letter is to advise your tenant that an application to the Tenancy Tribunal may be made for termination of the tenancy if the rent remains unpaid.

You may choose to issue the letter via post or email. The channel you use will impact on the breach notice period. While an email is received instantly, a letter can take a few days to be received.

To the Tenancy Tribunal

If you have spent two weeks trying to resolve the rent arrears through personal communication but to no avail, you can now take formal action.

Your property is your nest egg, your investment, and it needs to be protected. Fortunately in New Zealand, we have the Residential Tenancies Act 1986. Under Section 56 of the Act, you can lodge an application to the Tenancy Tribunal.

Application to the Tribunal for recovery of your rent can be made before the tenant gets to two weeks in arrears. Any longer and bonds will not cover rents by the time the application is made.

Things to consider when applying to the Tribunal:

• Is this your tenants' first offence?
• Do you have any background information that suggests the tenant will not be able to rectify the situation – such as loss of job?
• Are they repeat offenders and generally pay at the last minute?
• Has the tenant gone on holiday and failed to set up an automatic payment?
• Has the tenant abandoned the property?

If you take your tenant to the Tribunal a third time, you may consider against negotiating with them and request a termination of tenancy instead. It would be fair to say, by the third time, there is a clear history of ongoing rent problems.

By 21 days, if your tenant has still not paid and there is no end in sight, you can apply for repossession of your property under Section 55 of the Act.

The role of a property manager

A property manager is there to represent your best interests when it comes to the protection of your investment.

Each day a good property manager will run a rent arrears report. This will identify who has missed a rent payment and allow your property manager to contact the tenant immediately.
If things don’t go as planned, your property manager will chase payment. And, if need be, pursue payment through the appropriate channels.

Had issues with tenants not paying? Do you find managing your investment property more time-consuming than initially thought?

Call us today to find out more.