How to handle difficult tenants
When all goes well, a buy-to-let property can make a great investment. While you need to maintain the property well, you can earn a decent return by providing a roof over someone else's head - as long as you have bought wisely, seen above-average capital growth and have good tenants.
Most landlords will tell you the average tenant is decent and trustworthy. Horror stories of cruel landlords and bad tenants are, fortunately, still relatively rare. However, for any landlord, a problem tenant can rapidly turn into a nightmare one - and can even devastate your investment if things turn out for the worst.
Anecdotal landlords' experience suggests it seems to happen in as often as one in five tenancies. So if you own a property for a typical 15-to 20-year period and your tenants stay for the average 19 months according to the Association of Residential Letting Agents, it's likely that during your ownership you will experience at least two bad tenants. Knowing how to deal with them before problems arise is therefore an essential part of a landlord's arsenal.
Tenant problems can range from the relatively trivial, such as stains to the carpet, through to criminal activity, such as setting up cannabis factories. According to the Association of Chief Police Officers in England and Wales and the other regions, "increasing numbers of farms are being detected; 7,865 in 2011/12 compared to the 2007/8 baseline of 3,032". Damage from cannabis factories can cost tens of thousands of pounds to repair and not all insurance companies cover landlords for this or other malicious damage.
However, the main problem landlords face is tenants failing to pay the rent – either on time, or at all. According to LSL, a leading provider of residential property services, while the number of tenants in arrears is falling, there are still 67,000 tenants who are more than two months behind on their rent.
So if it happens to you, what should you do? Paul Shamplina, the founder of Landlord Action, a company that helps landlords to evict tenants safely and legally, says non-payment of rent is something a landlord should "jump on straightaway".
He explains: "You can't go round to the property and make any threats but you should ring the tenant the day after you haven't received your money on the due date set out in the contract. If you don't get an answer, then it's a matter of emailing, using the 'delivery and read receipt' button to prove they received your message. If they don't contact you, then advise the tenant in writing you will be visiting the property to meet and discuss the problem."
But Mary Latham, one of the most experienced landlords in the UK, having spent 42 years in the business, sounds a note of caution: "Just because you haven't received your rent, doesn't mean it is the tenant's fault. There may be a problem at the bank, their salary may not have been paid, there may have been a change in their personal circumstances, or there may be a problem with a benefits claim, so make sure you speak to the tenant first before taking any official action."
Of course, there are many other problems you may encounter regarding troublesome tenants. Shamplina says: "We have managed more than 28,000 tenant eviction cases, and they do include ones for noise issues or just nuisance. These range from one property that was turned into a church with a chicken slaughtered in the front room through to a naturist putting the bins out without any clothes on; and another tenant decided not to pay rent as the house, in their view, was haunted."
For whatever weird, wonderful or more straightforward reason that your tenant turns out to be a problem, the good news for landlords is that something can be done. And if a tenant causes problems for the neighbours, you're actually legally obliged to take steps to solve the problem and, if necessary, to evict the tenant. However, any action you take must be done lawfully.
If you have a problem tenant, your most important step is to assess whether the problem is short-term or a one-off that can easily be solved, or something more serious.
Taking legal action
If it is the latter, then legal action may be required. Do take sound legal advice if you have no previous experience of evicting a tenant; getting the procedure even slightly wrong could cost you a fortune.
There are two ways of evicting a tenant. You can issue either a Section 8, or a Section 21. A Section 8 is typically used when a tenant is in rent arrears, especially if your tenant has only been in the property for a few months. Other reasons might include being a nuisance to neighbours.
A Section 21 is normally employed to guarantee that you can secure the property when you are letting under an assured shorthold tenancy; the chief difference from a Section 8 is that you are under no obligation to give a reason for requiring the property back.
According to Landlord Action, "65% of our cases are straightforward Section 8 rent arrears cases and 35% and growing are accelerated Section 21 cases, where most of the time the tenants are awaiting a court order so they can be re-housed by the local council."
In both Shamplina and Latham's experience, just writing a letter to the tenant including a Section 8 or 21 Notice and advising them that action will be taken is often sufficient to encourage the tenant to leave the property.
A word of warning
But heed this word of warning about issuing notices to tenants: you must ensure you have protected the deposit properly from the start. If you have not both protected the deposit by registering it through the Tenancy Deposit Scheme and also provided, in writing, the correct information about it at time of tenancy renewal, then the judge may refuse your eviction notice.
This was highlighted in two recent legal cases; 'Superstrike Ltd v Rodrigues' and 'Gardner v McCusker', where eviction notices were refused due to incorrect or inaccurate paperwork. In addition, there are initiatives under way to ensure in future all deposits must be protected as of around September and if you have not maintained the property to a legal standard, then you may not have the legal authority to evict your tenant.
Of course, prevention is always better than cure. And to ward off a costly repair bill at the end of a tenancy, ideally you should visit your property every three months (or employ an agent who does) to run two checks: firstly, that the tenant is keeping it in good condition and, secondly, to see if it requires any maintenance.
Shamplina adds: "If you had spent time seeing the properties in the state I have, you'd wish you visited your rentals daily but you can't and every three months is typically considered the ideal inspection period during a tenant's stay. I've seen beautiful homes trashed by tenants, and I've seen homes we've had an awful time evicting people from being left in an immaculate condition, so you just never know which tenants look after the property properly for you."
By visiting regularly, you'll also build a relationship with your tenant and it might provide you with advanced warning of any potential problems that could turn into catastrophes if left unchecked.
Top five tips on how to avoid bad tenants
The best way to avoid having tenant problems is not to allow a bad tenant to rent your property in the first place. Here are a few ways to help you do this:
1. Check expenditure versus income via three months of bank statements
2. Watch out for forged references, passports or driving licences
3. Make sure work references are valid – for example, ring the company switchboard rather than ringing a direct dial to make sure you're speaking to the person you think you are
4. Research a tenant's rental history through sites such as 5landlordreferencing.co.uk
5. Closely match pay day with the rent due date.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.