Rentals in Lockdown #2 (Mar/Apr 2020) | Communicating with Landlords re Month-End & Arrears Management

We are all acutely aware of the concerns many Landlords have regarding rent payments this month and sensitive to the reality that these concerns may be causing additional stress for Landlords in these very uncertain times.

In my opinion the best way for your to prioritise what you do and to communicate with Landlords regularly so they know that you are working for them and to provide them with some answers – or, at the very least, to to share your thoughts and ensure then that you have their backs.

PRIORITY #1 – PAY OVER MONEY RECEIVED ASAP

Prioritise the receipting, processing and payment of rent payments. Receiving payment is the best reassurance you can provide your Landlords and can hugely reduce the number of Landlord enquiries you receive and have to attend to, hence my advice to focus on this activity.

NEXT STEP – PUT TOGETHER A PLAN FOR HOW YOU’RE GOING TO DEAL WITH RENT RENT ARREARS & COMMUNICATE WITH YOUR LANDLORDS

I know this is a huge concern and, given the stress this is causing and the understandable expectation that the rate of arrears will be high this month.

I have considered the options and advice from experts and propose the following plan for you to deal with these situations as follows:

  • Keep Message to Tenants Pre-Month-End Consistent and Clear

I propose the following message on ALL tenant queries pre-month end.

Rent, and all other amounts due and payable under the lease, are still due and payable as per usual under the lease terms and conditions. These obligations are in no way affected by the current circumstances or the regulations put in place.

We will only know the extent of arrears after 1 April 2020

From a very practical perspective, amounts payable by tenants are only due on 1 April 2020, so we will not know the ‘real situation’ until then.

I understand that Landlords may want answers before then, but I would discourage you from contacting tenants to enquire about their ability to pay at this point (prior to month end). Unfortunately there will be people wanting to take advantage of the current situation and not pay (or not pay in full), despite being in a position to, so i propose that you don’t do anything to create any impression or expectation that any indulgence will be granted in the case of rent arrears.

I’m sensitive to tenants that are not able to pay in full this month, but I believe the correct time to apply this would be after month end and on a case-by-case basis. I will be sharing my thoughts on this later.

  • How are you going to deal with rent arrears (post 1 April 2020)

I propose a strict ‘business as usual’ approach with respect to rent arrears. I understand that many Landlords may find this approach to possibly be harsh, but I believe it is the correct approach for a number of reasons, including:

  • You are contractually obliged to follow due process in terms of your contractual agreement with tour Landlords (the mandate). In the same way that Tenant and Landlord obligations in terms of the lease are still active (unless prohibited under regulations), you are still obliged to fulfil your obligations under our mandate. Your obligations will, of course, be guided by your specific mandate.
  • In terms of your mandate you have a fiduciary responsibility to act in your Landlords’ best interests at all times. If you do not follow arrears management processes you may not be fulfilling your responsibilities and obligations.
  • At the end of this month the arrears may be appear small and it may be the first time that a tenant is in arrears, but we do not know what the future holds. We are in very uncertain times and no one knows how long this situation will last. I believe that it is your responsibility to place your Landlords in a position to take further action in future should they need, or opt, to, or if the circumstances require it. If you do not take the first step (i.e. tick the first box in the process) your Landlords rights to take further action (lease cancellation and/or pursuing rent arrears) may be negatively affected or delayed.
  • The first step in the arrears management process is to inform the tenants that they are in arrears and therefore in breach of their lease and giving them a deadline by which these need to be settled in full, failing which the Landlord may exercise their rights, i.e. cancelling the lease and/or taking legal action to recover rent arrears.. i.e. ‘Letter of Demand’ (LOD). The time period would be 20 business days in the case of a fixed terms lease, or 7 days for month-to-month leases.
  • Landlord/s may only take the next action (cancelling the lease and/or suing for rent arrears) at the expiry of the period specified in the the LOD. In the case of the most common leases (fixed term) this is essentially a month – if we delay the sending of the LOD and the situation develops to an extent where the Landlord needs to take action later, there will be, in most cases, 20 business days’ delay in the Landlord being legally able to pursue further recourse.
  • Taking the first step does not mean that Landlord/s have to take the next step (cancellation of the lease or suing for rent), but it does give them that option and I think it’s important for them to have access to this option if circumstances warrant or necessitate them to.

If tenants do fall into rent arrears I suggest that you issue LOD’s as per usual after 1 April 2020 so that your Landlord/s usual rights are protected.

I have put together a draft communication for you to use (editable) to share the above approach with your landlords. Click here to download it.

I will communicate with you in due course about how I suggest you deal with rent arrears in more detail, including a covering letter / email for sending out the LOD. In particular one of the courses of action that has been proposed is to use the deposit to cover rent. I personally strongly disagree with this being pursued as an option, for the following reasons.

  • I believe it contravenes the Rental Housing Act, and
  • the deposit is the ONLY security your Landlord holds in terms of the lease and can be used to cover other amounts besides rent, e.g. early cancellation penalties, damages, etc. If it’s used now the landlord has holds no security, and
  • in my experience and understanding it’s easier to pursue rent arrears than other debts, so if a debt is going to be accrued I suggest let it rather accrue as rent arrears

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