Landlords and Insolvent Tenants

What Are Landlords and Tenant’s Rights in Insolvency?

If you are a property mogul, amassing a portfolio of properties to let out, be they commercial or residential, you are aware of the various challenges and intricacies that accompany becoming, and being a landlord.

It can be commercial properties or residential properties, each presents it own challenge.

First there is the decision to become a “Land Baron” and buy properties to let out. Then there is the question of what type of properties, and do I want to buy raw land and develop that.

Perhaps you wish to buy properties at auction, seek out a bargain and then maybe flip it quickly to make money, or fix it up, and let it out for the long-term.

If you wish to be a commercial property landlord, that brings up a whole new set of challenges, such as location, location, location.

Not to mention, high initial expenses, but you do receive the benefit of longer term tenancy agreements.

Even then once you have decided to move into the house of being a landlord, you need to ask yourself, how am I going to finance this property venture?

If you wish to be a landlord and let out residential properties, do you want to just have flats, maybe student housing in a university city, houses of multiple occupancy, then you need buy-to-let financing.

If you want to develop a set of new builds or be a commercial landlord, you require financing many times on a larger scale, development loans, bridging loans to use equity in other properties to purchase new ones.

On the surface, it can all seem very daunting.

And this is just getting started!

Then there is finding tenants, and not just any tenants, the right tenants.

These properties are your investment(s), your income and livelihood, and for some, their retirements.

So you need to do a bit of “due diligence” and get the right tenants, because if they don’t pay the rent, you still have loans and mortgages to pay.

Choosing Tenants

In finding the right tenants for your properties, be they commercial real estate or residential, there are always a few common factors, and the largest factor is affordability. You need to be sure the tenant can afford the rent.

As we will see, this is more difficult in commercial lets.

But the foundation of letting a place to a tenant, is that they can afford to repay the rent. This is done through a vetting process which begins with an application.

The process it self may include:

* A credit history check

* Previous landlord rental history reference or check

* Wage statements to inure affordability

* Letter form employer regarding future employment

Then there also is the Right to Rent check that needs to be done.

As a landlord it is your responsibility to insure your tenants have a right to rent in the UK. This is done by verifying and copying various documents.

These documents, such as a passport, certificate of naturalisation, residence permit, etc, all need to be verified and copied.

Deposits: Then there is the question of a deposit and how much of a deposit to ask for.

Some landlords request a months, or 4 weeks rent, others ask for 6 weeks rent.

This can be altered, increased or reduced, according to how stable and credit worthy your tenant seems, and also any references they may have.

Commercial Tenants: Landlords of commercial properties have a different set of challenges that await them. Yes, affordability is always first, but getting proof of this can be difficult, especially if it is a new or start-up business, such as a retail shop or store.

If a landlord can get an established tenant, one who has a business that has a history of success, this is great, if not, then the landlord may wish to have a Director or the owner of the business to guarantee the rent.

Especially for new businesses.

The landlord can then look into the guarantor’s credit history and background to insure they can afford to pay the rent.

Commercial leases are usually for longer periods of time then a standard residential tenancy agreement, so we want the relationship between landlord and tenant to be a solid one.

Late Rent Payments, Arrears, and Insolvency

Be it a commercial lease or a residential lease, there can come a time when the tenant experiences some financial hardship or strain, and may struggle to pay their rent.

Rent is a priority bill, and as such should be paid first, however, sometimes it doesn’t get paid that way.

As a landlord your ultimate recourse is eviction, however, eviction does no one any good, as you lose a tenant, and the tenant loses either a place of business, or their home. However, eviction is a tool to be used as a last resort, and if the tenant is not going to pay, then they must be evicted.

The process of eviction is a strict one, and also a legal one to be adhered to closely. If you do not follow the law, your tenant may be able to circumvent the eviction notice, and stay there costing you more money.

Rent Arrears: Obviously as a landlord you want your rent to be paid on the day it is due. You have bills and mortgages to pay, and need the money when you know it is to be there to pay your accounts.

Late rent payments can occur, if they become habit, you need to speak to your tenant as to why this is happening. Maybe changing the rent date could resolve the entire issue.

It is important to stay on-top of rent arrears, as the further a tenant gets behind and the more they owe, the more difficult it can be for you to collect the arrears, and for them to pay the increased amounts.

A good rule of thumb is if the rent is 7 to 10 days late, contact the tenant to follow-up as to why, and when the rent will be paid.

This needs to be outlined in your tenancy agreement as well as all recourse to collect the rent arrears.

Unfortunately there are going to be times when a tenant cannot afford to pay the rent, or the full rent. You then have to decide as to if you can work out a repayment arrangement, that in time brings the arrears current.

There also are going to be times when a tenant is insolvent, and may seek third party assistance to deal with their accounts, and debts. As a landlord, you will be considered one of their creditors, and should be considered a priority creditor, but that doesn’t always happen.

Insolvent Tenants

Insolvency is when your liabilities exceed your assets.

Once a person or company is insolvent, they have a few options, they can look at bankruptcy, or an IVA/Individual Voluntary Agreement, and CVA/Company Voluntary Agreement.

There are other debt management options, but those are informal, and as a creditor you do not have to accept them, you could look at eviction if an informal arrangement is put forward. However, even with formal insolvent arrangements, as a landlord what can you do.

Residential: If a residential tenant enters into some form of insolvency, bankruptcy, IVA, or DRO/Debt Relief Order, they can include their rent arrears in these proceedings, however, you as a landlord can still evict them if you do not wish to be a part of the repayment options.

In bankruptcy, a tenant who does not have any rent arrears, may continue to pay their rent on time, and so there are no issues, unless your tenancy agreement has a clause that allows you to evict a tenant if they go bankrupt.

In most instances, you as a landlord will not be notified of the tenant’s bankruptcy, and it is also your choice if you do find out as to act on the bankruptcy clause or not.

If you have a good tenant, why evict them.

Some landlords as a matter of background checks on new tenants will check the insolvency register to see if a perspective tenant has gone bankrupt. This as another way to check their credit.

If a tenant goes bankrupt with rent arrears, they may try to get caught up on the arrears while bankrupt. This can prove difficult, as any extra or surplus income the tenant shows while bankrupt, can be taken by the Official Receiver to be paid into the bankruptcy.

In an IVA, a residential tenant can include any arrears in the agreement, but you would have to agree to the arrangement, and most landlords may not agree, which again means, the tenant moves, or they can be evicted.

Commercial: In a commercial tenancy, there are some differences than a residential, however, as a landlord, you still have options.

If a company goes into Administration or is to be liquidated, and has rent arrears, as a landlord you are another creditor, who has to wait and see if there are any assets to liquidate and pay those the company owes money to.

In all probability, the rent arrears will fall low down those that the company owes, and you will probably receive nothing. However, you do want to be sure that you are listed as a creditor.

A CVA/Company Voluntary Arrangement is different.

If the majority of creditors agree to the arrangement, then the arrangement is binding to all. Most companies entering into a CVA will have rent arrears.

A company could use a CVA to exit a tenancy agreement, and also leave the property.

If the company wishes to stay in the property, and includes the rent arrears in the CVA, as a landlord you need to carefully look at your options and weigh your decision to participate in the CVA or not.

Will the CVA allow you to recover some rent, and if so how much, and can you work with this amount.

If you do not agree with the CVA, and the majority of the company’s creditors (75%) vote to agree to the CVA, then the CVA is binding to all creditors, which includes you as a landlord.

As a landlord you can challenge the CVA within the first 28 day on the grounds of “unfair prejudice and/or material irregularity”, however, this may not change your position.

Many landlord are upset over the use of CVA’s and rent arrears, and feel rent arrears should be a priority debt, and as such, not included in a CVA.

During the period of the CVA, the landlord is expected to receive a reduced rent amount, should the CVA fail, or be dissolved, the landlord is once again then entitled to the full rent amount.

There have been cases where a landlord challenged the reduced rent they were to receive, and the courts upheld their challenge, and the landlord was considered a priority, and paid full rent. This is not in every instance.

As a landlord in both an Administration/liquidation and CVA situation, your rights are limited. You need to stay on-top of your tenants and their agreements, and watch for any signs of rent arrears, rents coming in later and later, and stay in communication with the tenants as to their situation.

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<strong>What is Our Criteria For Applying?</strong> 
Every lender on our website has their own specific criteria by the basics are mentioned below and you must have a guarantor to be eligible. Simply select the lender of your choice and you will be taken directly to their website where you can apply. You will be required to submit your details including:<li style=”text-align: center;” data-mce-style=”text-align: center;”>Name (must be over 18 as the borrow, 21 or 25 as the guarantor)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Residence (your chances will improve if your guarantor is a homeowner)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Employment status (must be employed or on a pension)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Income (earning at least £600 per month and able to make repayments)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Monthly expenses (not have too many loans open or in major debt)</li>
You will then be asked to include the details of your guarantor and as mentioned above, this is usually someone who you know and trust and wants to help you with your personal finances. Ideally, a guarantor with good credit will maximise your chances of being approved based on the idea of ‘if someone with good credit trusts you, well we can too.'<strong>How Much Can I Borrow From Guarantor Loans?</strong>Guarantor Loans gives applicants the chance to borrow £500 to £15,000 depending on the lender. Some lenders we feature like Buddy Loans only have a maximum loan value of £7,500 and TFS Loans is the only lender that stretches up to £15,000.Factors that can influence the amount you can borrow revolve around having a good guarantor. One that is a homeowner, with solid employment, income and good credit rating will maximise your chances of borrowing the largest drawdown possible.The lenders featured on Guarantor Loans see a homeowner as someone who has already gone through the rigorous process of credit checking and affordability and if they can afford a house, they should be able to act as a guarantor for you.By comparison, having a guarantor that is not a homeowner offers slightly less security and means that amount you can borrow is slightly less too.Higher amounts may be available to those who already have a better than average credit rating, are homeowners themselves and a repeat customer with the lender who has already paid their loan on time. To apply directly with your lender of choice see <a href=”” data-mce-href=””>direct lenders</a>.<strong>What Does The Guarantor Have To Do?</strong>Upon completing an application, the lender will typically send you a <a href=”” data-mce-href=””>pre-contract loan agreement</a> and SECCI (Standard European Consumer Credit Information form) which will highlight the terms of your loan. You and your guarantor will be required to review the terms of the loan, including the loan drawdown, fees, repayment dates and responsibilities – and this can be signed via an online verification process using your email and mobile phone.The lender will usually carry out an individual phone call with you and your guarantor to ensure that you both understand the responsibilities and what is required of you – notably that if you cannot make repayment, your guarantor will be required to pay on your behalf. Further to some additional credit and affordability checks, funds can typically be transferred within 24 to 48 hours (or sometimes on the same day).<strong>Are Guarantor Loans Available For Bad Credit Customers?</strong>Yes, even if you have a history of adverse credit, <a href=”” data-mce-href=””>CCJs</a>, bankruptcy or IVAs several years ago, you can still be eligible. The idea is that you are using your guarantor and their financial history to ‘back you up’ and give your loan extra security. However, it is noted that your guarantor should have a good credit score and consent to co-signing your loan agreement.<strong>How Soon Can I Receive Funds?</strong>Guarantor Loans works with lenders that can facilitate funds within 24 to 48 hours of approval, or sometimes on the same day.When your funds are successfully transferred, most lenders working with Guarantor Loans will send the full amount to the guarantor’s debit account first. This is a standard security measure carried out by lenders to ensure that the funds are going to the right person and confirms the involvement of the guarantor. The guarantor usually has a ‘two week cooling off period’ where they can decide to pass on the money to the main borrower or they can change their mind and return the funds with no extra charges.