Tips to minimise rental arrears

When money is tight, there is an increased risk of tenants failing to pay their rent. While some situations are beyond a landlord’s control, there are steps you can take to minimise the risk of rent arrears.

The truth is that costs are rising as inflation outpaces wages growth, interest rates (while now on hold for almost a year) have risen, and unemployment is on the up. Tenants are also facing a tight rental market, with rents rising amid low vacancy rates. SQM Research figures for September 2024 put the median national rent for houses at $695 per week and units at $549 per week, while the vacancy rate for August was just 1.3 per cent.

What this can mean for landlords is an increased risk of rent default and if the tenant cannot catch up on payments, the landlord can be faced with rent arrears at a time when many property owners are also under financial pressure.

Rent arrears is a situation neither tenant nor landlord wants to be in. To help tackle this issue, here are some things landlords and their agents can do to help minimise the risk of rent arrears occurring.

Carefully vet tenants

Getting the right tenants into the rental in the first place is vital. Be sure to thoroughly screen prospective tenants – check tenancy databases, speak to previous landlords and agents (be sure to check if the tenants were ‘good payers’ or left owing any rent), call up referees, and verify employment details and income.

It is particularly important to check that the tenants can afford the asking rent. The total household income should be enough to cover the rent plus normal living expenses. If the prospective tenant would be paying more than 30 per cent of their income in rent, they may not be able to afford it.

Keep on top of arrears

It is all too easy for a missed payment or two to gradually spiral out of control if the tenant cannot catch up. If your tenant has fallen behind in their rent, the sooner you know about it, the sooner you should attempt to resolve the issue.

A missed payment may just be an oversight by the tenant, so get in touch and have a chat. If the missed payment is not a ‘one off’, be sure to follow the legislated requirements for issuing breach notices.

Need to know: It is a condition of landlord insurance policies to act to prevent further loss – and this includes when it comes to rental income. Landlords and agents need to act quickly to address rent arrears to limit losses. Failing to take action could see the landlord left out of pocket as there is a limit on the number of weeks an insurer will cover loss of rent due to rent default.

Conduct regular inspections

Once you have secured a great tenant, be sure to conduct regular property inspections and keep an eye out for ‘red flags’ that may suggest the tenant is about to abscond and rent default is on the horizon. Watch for signs like the tenant avoiding your calls to set up an inspection, dwindling possessions like clothing and furniture, packing boxes onsite, or services disconnected.

Top tip: Be sure to keep tenant contact details up-to-date (home, work and mobile numbers, email addresses) including details of a relative to contact if you cannot get hold of the tenant.

Maintain a positive relationship with your tenants

Build good rapport and a positive working relationship with your tenants. Open and transparent communication with tenants can often mean that they let you know early if they are experiencing payment difficulties. Knowing there is a problem gives you the opportunity to put a plan in place to tackle the arrears before the situation reaches the point of no return.

Work with your tenants if they fall into arrears – as far as possible

Sadly, there will always be some tenants who will do the wrong thing on purpose – break the lease, abscond, refuse to pay rent, refuse to vacate or squat – and you will want to follow the legislated procedures for eviction as soon as possible.

In other cases, a tenant’s inability to pay their rent may be through no fault of their own. Circumstances can lead to even the best tenants experiencing financial hardship or overlooking the rent payment for some other reason. If the interruption is only temporary and you want to keep the tenant in the property, then consider what can be done to help – so long as it is financially feasible.

Word to the wise: Be sure to check the insurance implications of any leniency measure you look at offering your tenants. Some measures, such as waiving rent or reducing rent, can impact loss of rent claims.

Know what to do if things do not work out

If your tenant is in arrears and cannot or will not catch up on what is owed, you will need to understand and follow the proper, legal procedures to seek restitution or eviction. If you need to evict or go to court over the matter, having all your paperwork in order will help your case and any subsequent insurance claims too.

Head’s up: If an insurance claim for rental loss is made, it is important the legal eviction process has been followed.

Protect your rental income

You and your agent would not lease your property to a tenant if you thought they would default on their rent, and no honest tenant would take on the tenancy knowing they had no intention to pay. But sometimes the universe intervenes to trip up even the best-intentioned tenant, and rent default becomes a reality you are left to face. Having a specialist landlord insurance policy that offers cover for loss of rent, and specifically rent default, is a wise investment.

Did you know? In 2023, EBM RentCover settled almost 2,500 claims for loss of rent, with the total value of the insured losses coming in just shy of $19 million.

If you have questions about an EBM RentCover landlord insurance policy, get in touch with a member of our Expert Care team – 1800 661 662. 

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.