Managing risk is as essential to the success of a private landlord’s business as it is to the climber’s avoidance of hospitals. But this takes something many of us do not have a lot of…..time. However, loss of rental income is often one of the many consequences of failing to invest time and effort in risk management.

Identify the hazard

Inherent to managing risk is the art of identifying the hazard and deciding upon the likelihood of occurrence and the severity of the event. Active steps are then taken to reduce the likelihood or the severity therefore reducing the risk. Rent arrears are every private landlord’s worst nightmare. The standard practice of references from previous landlords or a current employer as well as affordability assessments are a start but activity should not stop there. References provide a snapshot in time and do not account for a change in the tenant’s circumstances – the most common cause of rent arrears.

Change in household income

A drop in household income through change of employment, reduced hours, increasing cost of living or illness could well lead to rent arrears. If rent payments fall short and the landlord fails to respond immediately or appropriately this increases the risk that the situation escalates.

These key steps should help resolve arrears as early as possible:

  • Early communication with the tenant both verbally and in writing is needed to understand why the rent is in arrears and to begin to agree a realistic repayment plan, taking the tenant’s circumstances into account.
  • Providing clear information to the tenant reminding them of the terms and conditions of the tenancy, the rent they pay and an up to date statement of account detailing the amount outstanding.
  • Information about how to get advice through either the Shelter Scotland Helpline (0808 800 4444) or the local Citizens Advice Bureaux to get help with benefit maximisation and debt management should also be provided.
Equip the tenant to address the situation quickly

These examples of good practice are known to be effective in equipping the tenant to address the situation quickly.  Making a phone call and hoping everything will be ok is a recipe for disaster for the landlord and tenant alike. Being ready to pro-actively and positively respond to rent arrears lessens both the likelihood of escalation and in turn the severity potentially saving the tenancy and preventing homelessness.

The new Private Residential Tenancy

The new Private Residential Tenancy, due to be introduced next year, will give tenants greater security of tenure. This means that landlords will need to actively use the grounds of possession rather than simply ending a tenancy without reason should something go wrong, for example where a tenant falls into rent arrears. Therefore this is a good time for private landlords to think about how they manage rent arrears now and in the future. Being prepared for the event with template letters, sources of help and a standard process will save a lot of time if it is needed. This will also help the landlord respond in a professional manner to the situation by depersonalising any approach to the tenant and ensuring interventions are clearly communicated, reasonable, fair and effective.

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