If your tenants can’t pay rent, it can mean that you can’t pay your mortgage. Rent arrears are a really common issue for landlords. In the age of COVID-19 with job losses and businesses shutting down, it's inevitable that more people will be unable to pay rent.
But now, more than ever, it is important that people feel safe and secure in their homes. If tenants can’t pay rent, the usual process is to serve a 14-day notice to remedy.
In the current climate, where Auckland is just coming out of a second lockdown and COVID-19 is still costing Kiwis work, you may want to consider some other options before opting for a 14-day notice.
Here are some things you can do, and things to remember, if your tenant can't pay rent:
Communication between tenants and landlords
Communication is key. Everyone’s circumstance is unique and there is no “one-size-fits-all” when it comes to rent arrears in this situation.
Be sure that when you speak with your tenants you ask the right questions. If they can’t pay rent, that could be the least of their worries. Get a complete picture of what your tenant is going through so that you can work together to find a solution.
If you yourself have concerns over your health or your livelihood, it might help to mention this to your tenant. Telling them about your own situation can help them to realise that we are all in the same boat, and need to keep working together for a way to get through.
As nobody has had to deal with this type of situation before, patience is key. You may not get all the answers that you need straight away, so don’t panic if you have to wait for clarification from your bank, your insurance company, or your tenants. We’re all in this together, and every person you speak to on the phone is a person too.
It is time to think of ‘us’ instead of ‘me’.
Things to ask your tenants
- How are you? (Keep in mind, they don't have to tell you)
- Have they lost their job or business?
- Do they have any concerns about being able to self-isolate and social-distance effectively while living in your property?
- Are there any urgent repairs that need to be done to the house?
- Have they applied to the government for temporary income assistance?
- Have they applied for rent arrears assistance?
There is a lot of information available online for tenants, but for various reasons they may not have seen it or understood where they can go to for help.
There is also a lot of misinformation circulating on social media, and this is where misunderstandings can arise. Help your tenants by providing them with links to official information from the New Zealand COVID-19 website.
Important questions to ask yourself as a Landlord or property owner
Providing a rental property is a service, and you should already have measures in place to prevent rent arrears. But unfortunately, in times like this, those measures don’t always make a difference. Background checks or credit scores, clauses in your tenancy agreement, emergency savings and landlord insurance can be meaningless when there is a global pandemic. Still, here are some questions to ask yourself:
- Do you have a buffer in place to cover the mortgage for a period of time?
- Do you have landlord insurance?
- Is your rent at or above market rate, and can it be reduced?
- Are you relying solely on rental income to pay your mortgage?
- Has your own income reduced significantly?
- Would you consider the short term relief of a mortgage holiday?
Think about the long term positive impact a small change will have. Can you reduce rent for a period of time while your tenant has lost their income? If you adjust the price of your rent, make sure you have a written agreement with the new amount, and details on how long it will be paid for.
If you had previously arranged a rent increase and that did not come in to effect before the 22nd of March, that increase is now void.
A six-month rent freeze was put in place from March 23rd that means rent cannot be raised until September 25th. Although this date is fast approaching, bear in mind that it could be extended and there is another new rule around rent increases you'll also need to consider.
A new 12-month rule was introduced on August 12 with the passing of the Residential Tenancies Amendment Bill. This rule essentially means that landlords can only increase rent once every 12 months. Keep this in mind if you are looking at upping the rent when the ban drops. But, it might be wise to delay an increase if the rent money is in arrears and you have tenants you want to help and keep!
Is cash flow an issue? Speak with your bank about the possibility of an interest-only mortgage for a period of time. Be aware that a mortgage holiday provides you with relief in the short term however, in the long term it adds more to the total amount of your mortgage.
‘A six-month repayment holiday will add about $15,000 to the cost of a loan for someone with a $500,000 mortgage at 4 percent. Or about an extra $72 a month once payments began again’ -Moneyhub
A mortgage holiday is a great solution to short term cash flow, but it should be a last resort. If you can find a way to afford to pay the mortgage on your rental property without compromising your basic needs, you should.
Things get messy when you don’t have a clear record of the changes you have made. Any changes to payments need to be in writing and approved by both parties.
One of your obligations as a landlord is to keep a rent book and be accurately recording all rent payments. You need to be able to provide this to your tenants at their request. An accurate and up-to-date rent book will be especially important now with rent amounts changing, and the higher possibility of payments being missed.
Remember, both yours and your tenants’ mental health and wellbeing is extremely important during this time. Understanding and supporting each other through this uncertainty will mean taking a little more care, especially in the way that you communicate.
We’re all in this together.
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