Creating A ‘Payment Plan’ When Tenants Fall Into Arrears

You remember a few weeks ago when I published a blog post about how my tenant was close to falling 2 months in arrears, and how he wanted me to show mercy because he was “honest” about his financial difficulties (for some reason the donkey presumed I would NEVER have discovered the rent arrears if he wasn’t honest about it), right?

You remember, right? If not, do the right thing by clicking on the link provided above.

So as the situation stood, my tenant was 5 days shy of falling 2 months into arrears, which would increase the amount he owed to £1600 (2 x £800pcm).

Credit where credit due, up until he hit financial turmoil, he’s been a good and reasonable tenant. But since then, he’s been a bit of an irrational tosser, which I imagine is due to stress. Understandable, of course. But still frustrating.

On one hand, I don’t want to see him or his family on the streets, but on the other hand, I can’t endure his rent arrears. So there I was, contemplating whether or not to serve the dreaded Section 8, eviction notice.

But check this out…

After I informed him he was close to qualifying for grounds of eviction, he miraculously managed to pay £800 4 days before the 2 months arrears mark.

Amazing how scary powerful the word “eviction” can be in these situations. I have no idea how or where he managed to find the funds, but nor do I care, that’s his sleazy business, I’m just glad the debt is settled.

However, unfortunately for all parties involved, the current month’s rent was due in 4 days time, which means he needs to miraculously fish out another £800 from somewhere. That’s the problem with arrears, they can snowball quickly, and that’s a reality that some tenants often fail to appreciate when landlords are encouraging them to keep on top of payments.

Realistically, finding another £800 in 4 days time was never going to happen, and we both knew it.

While my preferred choice would be to get his wife into something inappropriately filthy and sexy so she can work the streets in order to recoup the arrears, we decided to go with plan B, to compile a “repayment plan”, which would give him a little extra time to catch up with his payments and keep him on track for future payments.

So here’s a quick run-down of the situation:

• Rent is due on the 25th of each month
• Tenant was going to be 2 months in arrears on the 25th May (£1600), meaning he would owe rent for April and May
• He managed to pay £800 on the 21st of May to cover April’s rent
• On the 25th of May, rent was due again, which he couldn’t pay.

The scheduled payment plan

He said he could do the following, which would cover May’s rent:

Essentially, we agreed to spread May’s rent over three months. Not ideal, but very workable and reasonable from my perspective (my tenant’s, too).

I actually feel very fortunate given the circumstances. The payment plan was simple and easy to swallow; I’ve definitely been tangled and dragged through much more complicated and unreasonable plans. I’m grateful.

Generally speaking, the simpler the plans, the more achievable they are and the better likelihood of success.

Maybe you should consider offering a payment plan when tenants are in arrears

Payment plans don’t always work, especially if they’re unrealistic. Moreover, a lot of the times they’re just used as a decoy by the tenant to by-time. So you need to assess the situation carefully, and be realistic about whether the plan is achievable/suitable for your situation.

Before offering a payment plan, it might be worth discussing how and when the tenant plans on obtaining their money. You should be able to make a decision based on those details, along with using their past behaviors as a character reference (i.e. have they generally been good tenants?).

A lot of the times tenants just need a little time to make arrangements, and a revised payment plan is exactly the type of breathing space they need to get their shit together. It’s not necessarily a bad thing. Payment plans can be a good option for honourable tenants, and certainly better than unnecessary evictions.

Document the payment plan on paper

This is an imperative process in the “payment plan” solution for both tenant and landlord. Document everything. Once you come up with a payment plan, write down everything that was agreed in a clear and understandable manner, and send a copy to the tenant to sign and send back to you. Ideally, the tenant and landlord will each have a copy, so there is no confusion.

Right, I’m done. Please feel free to contribute to the topic!

P.s. Does anyone have an example of a template payment plan? That would be useful. If I manage to get a decent one, I’ll provide a link for ya’ll to download.

No luck? Try using a rent recovery service…

Your tenant not playing ball?

Did s/he give your fair payment plan the finger?

It happens. Unfortunately, you may have to start the eviction process and/or start the rent recovery process.

Best of luck xo