Bad debt is a problem we all want to avoid, however in the Private Rented Sector sector this is a problem many are faced with. It is an important issue to address and combat in the advent of the Build to Rent Sector. The UKAA held a round table on the subject delivered by Mark North and James Attew of Brethertons LLP, hosted at Allsop LLP’s office in London. It was interesting to learn of the problems and conflicts businesses are finding themselves in as a result of bad debt.
Effectiveness of Policies
At the moment many companies have an arrears policy as part of their credit control procedure, however these policies are not always effective. The round table debated when was the best time to present clients with such a policy and how effective it actually is. Even including the policy as part of the tenancy agreement or the welcome pack can be overlooked and generic chasing emails are often ignored.
With regards to deposits, there are planned government schemes to cap rental deposits to 5 weeks, this will have a huge impact on bad debt, however once a tenant has fled, there is little you can do.
James Attew from Brethertons considered whether deposits may be inefficient in the rental market:
“There are so many legislative hurdles for landlords to overcome when taking and protecting a deposit, which can have significant effects on, for example, recovering possession of a property at the end of a tenancy”.
James also discussed the issue of obtaining payment of arrears from an absconding tenant at the end of a tenancy:
“You need to give a tenant enough time to create a footprint, then tracing agents can help to track them down through lines of credit.”
Mark North of Brethertons suggests going through a process of elimination:
“Find an address for the tenant, determine if/ how far overseas they are, is it worth chasing? Get a judgment, for me this is the key as your options will now start to look a bit better. It all comes down to if you believe you have a realistic chance of obtaining payment at the end of the day.”
Mark has also found when companies use legal representatives such as Brethertons LLP, that element of gravitas generally results in tenants being more responsive. Many disputes are not defended by the tenant. As a business, it is important to consider any potentially negative PR that may come of a case, should it become public.
Good customer service through communication
It was discussed that maybe the right approach is to build a relationship with your clients, communicating verbally initially, with written correspondence should the matter not be resolved in a short time frame. Acting promptly is important, as generally tenants in arrears are probably in debt to other creditors. Recovering arrears can be a lengthy and expensive process and it is good practice to use all information you have regarding the particular tenant, to calculate your anticipated returns against the likely costs of chasing this money.
UKAA hold regular round tables to discuss various topics relevant the BTR industry and everyone is welcome. Please contact us if you would like to participate or find out more about joining our membership.