Having a tenant move out and not pay rent is a frustrating situation. The unit is empty, income has ceased, and debt is owed. While some landlords chalk it up to the cost of doing business, others apply various methods of collection to receive what they’re owed. How landlords attempt to collect—and if they attempt—largely depends on how much is owed, personal resources and likelihood of collecting.
However, collecting money from former tenants is inherently more challenging than collecting money from current ones. The threat of eviction is gone, the potential for withholding services is moot. The tenant has moved on—which sometimes is the intent—to avoid paying what’s owed. Yet just because collection is less likely does not mean it’s an impossible feat.
Contents
The Stakes
Not every amount of money makes sense to pursue. A couple hundred pounds left on the table and the tenant’s obvious exodus from the area with no forwarding address means the time and resources spent aren’t worth it. However, several months’ rent plus damages is something worth pursuing, even if it takes time before it could be collected.
The first step is proper documentation. A final statement of account showing what’s owed, pictures of the incurred damage, records of attempted communication—this matters in court or collections. Without documentation to show what’s owed, even legitimate debts become difficult to prove as there’s no paper trail for what’s actually necessary.
Foundation of Small Claims Court
Small claims court establishes the foundation for obtaining unpaid rent. Generally, this process does not require hiring solicitors unless small amounts aren’t enough to make recapturing fees worth it. Landlords must pay filing fees corresponding with their claim amount but these will be added to what the tenant owes should the landlord win.
While getting a judgment from a court process legitimizes a claim and gives landlords the legal right to pursue collections, it does not ultimately guarantee collection. The tenant must still pay, and most judgment debtors do not voluntarily pay once in judgment. This is where things become more complicated.
Collection Agencies
After obtaining—or even without obtaining—judgment, collection agencies may be employed. Operating as an unpaid rent collection agency means deferring pursuit to experienced professionals who work with debt collection consistently. They have systems for contacting debtors, making payment arrangements, and potential leverage through credit reporting or consistent contact.
Typically collection agencies work on contingency—this means they take a fee based on what they successfully collect. Therefore, there’s no cost to the landlord in the upfront process but there’s also no guarantee that 100% will be collected by the landlord in the long run. The landlord will need to give a percentage to the collection agency in any case. Usually percentages range from 25-50% depending on how old the debt is and how small it is or how large it is and how collectable it is. Older amounts that are smaller generally yield higher fees because they’re harder to collect.
Credit Reporting
Credit reporting helps create immediate repercussions for tenants should they choose to ignore requests for payment. Most people have credit scores they wish to keep clean—when they’re trying to rent again, purchase a car or home or get a loan. While outstanding balances are expected and reported, a non-collected rental payment raises red flags on credit reports.
Legally and lawfully facilitated credit reporting is a means of collection that serves better than letters or phone calls because this creates a consistent problem in addition to immediate annoyance. Credit reporting has specific guidelines that must be followed including communicating with tenants about their debt being considered so it’s important to follow through appropriately.
Payment Plans
Settlements and payment plans mean many former tenants do not have immediate recourse to pay what’s owed but may pay over time. Just because they can’t fulfill obligations does not mean they’re bad renters; if they charge monthly charges to help recoup losses, then offering payment plans or settlement for less than what’s owed saves landlords trouble of keeping it on their record because any payment—even partial payment—is better than no payment at all.
Unless the tenants move out without caution and ignore payment arrangements altogether, this means there must be follow through on both ends as settlements facilitate smaller amounts than were anticipated. The only problem with this occurs when plans fail—what happens when they make two payments and stop? More often than not collection efforts resume or partial payment is accepted for lost time and energy as effort to come to an agreement feels more worthwhile than fighting about it.
The Uncollectable Debt
Some debts are uncollectable. Judgment-proof is a phrase used in collection agencies to indicate that there’s nothing worth collecting if judgment is found; it’s useless. The tenant may have no money in savings, little employment options or passion for credit reporting debt. These situations reveal that there may be nothing that could be gained even if collection efforts were pursued.
Yet even uncollectable debts have power in numbers. Keeping records with collections—or attempting—means that if things change for the debtor (they get another job, they buy a house, they want good credit), then if their financial situation improves or buying properties become an option, then debts can be collected retroactively. Some debts that seem hopeless become collectible down the line—but not all tenants who are debtor-proof should be banked on being collectible.
Reality Check with Costs vs Reward
Money spent in pursuing collection efforts from former tenants who did not pay rent means money spent on fees/invaluable time/court/collection agency percentages can cause stress for landlords who believe their payments due will not be paid based on cost benefits of giving up vs going through the process.
For smaller amounts, the cost of going through the effort makes little sense since before you know it you’d be paying more than collecting. For larger amounts, larger debts either exceed the previous investment as sunk costs or make sense since what’s to lose? It seems smaller amounts are absorbed as part of business while higher amounts draw suspicion.
While some landlords find debtors at different thresholds worth avoiding the time and money lost as fee waiving occur; other landlords find somewhere around a month’s rent to be the golden threshold. Collecting lower than that does little but beyond that at least gives some hope that something can come good from it.
What Did We Learn?
When deposit collections occur after tenant turnover—for whatever reason—lessons are learned about screening tenants upfront, lease terms expectations and payment enforcement diligence for holding those tenants accountable when they most need attention.
Landlords who find themselves repeatedly in pursuit of former tenants for unpaid rents might need to reflect on their initial process of proper tenant screening, stricter lease enforcement all contribute since getting those tenants into the places they’re going to sublet is more important than holding their feet to the fire once they’ve already mismanaged payment terms.
Ideally effective landlords will not need to collectors learn about collections; however, if situations arise where collections are required, learning what parts are most effective with realistic expectations helps minimize time spent over going a process that’s less likely to succeed than allowed down without hardly any success coming.
