Falling Behind in Rental Payments

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Question: What can be done if my tenant is getting behind in their rental payments?

Answer: By Carolyn Parrella, Executive Manager, Terri Scheer Insurance

A tenant who falls behind in their rent can become one of the biggest financial risks to landlords and can often put them under considerable financial stress.

Despite the tenant being unable to make the payment, in some cases, it can be a landlord’s complacency that leads to the actual loss of rental income.

Screening tenants, maintaining good relationships, following procedures and appropriate landlord insurance are just some of the factors that can help a landlord protect their rental income.

Screen tenants

Thorough screening may help a landlord avoid loss of rental income by selecting a tenant with a good rental history.

Upon receiving a rental application, landlords should also assess a tenant’s employment background, criminal history and eviction history.

If the screening process shows irregular employment, history of criminal activities, eviction from properties and/or issuing with multiple notices, the landlord should reconsider the applicant’s suitability as their history may indicate a less reliable tenant.

Maintain good relationships

Maintaining a good relationship with your tenant can bring many benefits to a landlord.

An open and transparent relationship with your tenant may encourage them to uphold their rental agreement.

Likewise, if a tenant feels comfortable discussing issues with their landlord, they may be more inclined to advise you well in advance if they are having difficulty with making rental payments and help you avoid unexpected shortfalls.

Follow the correct procedures

Financial circumstances can quickly change, meaning even the most reliable and trustworthy tenant can find themselves struggling to pay rent.

You can help to minimise the impact by following some key procedures:
  • Monitor arrears
Monitoring arrears – the rent that is overdue after missing a payment – is an important task in managing late rental payments or loss of rental income.

You could have a process to check your bank account on the day that rent is due and continue to monitor each day thereafter.

The sooner you know that your tenant is getting behind in their rental payments, the sooner you can look to resolve the issue before it gets out of hand.
  • Serve the right notices

It’s important not only to issue the correct breach notice when a tenant falls into arrears, but also to issue the notice within the required timeframes.

Timeframes may vary from state to state in Australia making it important for landlords to familiarise themselves with local tenancy law.

Your ability to make loss of rental claims through your insurance policy could be affected by any delays in issuing the right notices. You should check your insurance policy for the full details on what you are and are not covered for.
  • Eviction process

If a tenant does not pay their rent after receiving the first breach notice, landlords may be able to send a second notice requesting to terminate the lease and for the tenant to vacate the property.

Landlords may need to contact their relevant tenancy authority to request a hearing if the tenant does not respond to the termination and vacation notices. This could result in a possession order to evict the tenants.

Appropriate landlord insurance

Some landlord insurance policies are specifically designed to cover loss of rental income in certain situations and can provide assurance of receiving regular rental payments when a covered event occurs at the investment property.

A sound insurance policy should cover landlords for loss of rental income, as well as malicious and accidental damage and their legal liability.

Check your insurance policy and seek professional advice to ensure you have the appropriate coverage.

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Carolyn Parrella

Carolyn Parrella joined Australia's leading landlord insurance specialists, Terri Scheer Insurance, in 2004 and was appointed Executive Manager in 2009.
Carolyn oversees all operations within business, which aims to protect landlords against the risks associated with owning a rental property. These include malicious damage by tenants, accidental damage, legal liability for occurrences on the property that cause death or bodily injury, and loss of rental income as a result of damage to a property or a tenant absconding.
As a South-Australian based national insurance firm, Terri Scheer Insurance is the only company in Australia to specialise solely in landlord insurance.
Carolyn also owns two investment properties.

For further information, visit www.terrischeer.com.au or call 1800 804 016. 

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