Creating A ‘Payment Plan’ When The Tenant Falls 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 self-claimed entitlement to mercy because he was “honest” about his financial difficulties, right?

You remember, right?

If not, you should do the right thing by clicking on the link provided above.

I just want to give ya’ll a dull update on the matter.

So as the situation stood, my tenant was 5 days shy of falling 2 months into arrears, which would lift his payable balance to £1600 (£800 PCM).

Admittedly, up until he hit financial turmoil, he’s actually 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.

On one hand, I don’t want to see him or his family on the streets, but on the other hand, I’m not running a charity. So there I was, contemplating whether or not to serve the Section 8, eviction notice.

But check this out…

After I told 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. I have no idea where or how he managed to get that money into his grubby little mitts, nor do I care, that’s his sleezy business, I’m just glad he paid.

However, unfortunately for him, the current month’s rent was due in 4 days time, which meant he would be required to pay another £800. That’s the problem with arrears, they snowball if they’re not dealt with sharply- a reality that some tenants often fail to appreciate when landlords are badgering them to keep up with payments. Realistically, finding another £800 in 4 days time was never going to happen, and we both knew it.

Ever since I said the word “eviction” to him, there’s been definite signs of improvement- he’s been more eager to keep me sweet. I imagine he’s in one of those situations where the rent is probably a little out of his budget now, but he can’t afford to move somewhere cheaper. So he needs me more than I need him right now.

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, May’s rent was due, which he couldn’t pay.

The payment plan

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

Date DueAmount (£)
25th May200
1st June200
8th June200
15th June200
TOTAL800

My tenant said he would have arranged his finances by the 25th June, consequently, he’d pay June’s rent on the 25th (as when it’s due). So far he’s kept his word on the payments, and only time will tell if the plan will be fully honoured. I have faith. Kinda’

I’ve actually been very fortunate given the circumstances. The payment plan was simple and easy to swallow; I’ve been tangled in much more complicated plans.

What is a rental (re)payment plan?

A rental payment plan is a revised payment solution which can be used when a tenant has a temporary/sudden change in financial circumstance. The plan should be used to help the tenant catch up with their arrears and/or help manage their new financial circumstance.

When my tenant fell into arrears and was approaching the 2 month territory, we had a discussion over the phone, and compiled the payment plan together, which we both felt was realistic and acceptable. I believe that’s the best way to do it, to talk over the phone or in person.

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. Before offering the payment plan, it might be worth discussing how and when the tenant plans on getting their money from. The landlord should be able to make a decision based on those details. However, it’s definitely worth considering/offering a payment plan to a tenant who you genuinely believe can honour it.

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. Always consider compiling a new payment plan as a solution. It can be a good option, and almost 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.

2 Comments- Join The Conversation...

Guest Avatar
YesAdam 13th June, 2012 @ 16:27

Your welcome, see comment 5 in previous article. I should have asked for commission along with the comment, theirs always next time.

I do have a court issued payment plan, its nothing special just words on a paper. Its where we won a Section 8, but knowing tenant was not at "fault" (kinda) I agreed that I wont go for possession if plan was stuck too (it has been so far).

Copy of Payment Plan: http://i.imgur.com/Ac9r1.jpg

1
The Landlord Avatar
The Landlord 14th June, 2012 @ 08:57

Ha, I didn't even remember you suggested a payment plan! But I want to give you credit, because you've already claimed it, and I don't want to snatch it away from you and rock the boat between us! So, thank you very much, I owe you.

Ahh, that is interesting. Never seen a court ordered payment plan before. I could use that to draft a payment plan. Once again, thanks! You've been beautiful.

2

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