According to our rental data, 9% of tenants have experienced financial difficulties during these uncertain times and are looking to their landlords for either a rent payment holiday, a revised rent payment plan or a rent reduction.
The difference between a mortgage and a rent payment holiday
As part of the measures put in place to support landlords and tenants during the coronavirus (COVID-19) outbreak, the government announced on Wednesday, March 18th that banks and mortgage lenders were to consider requests for mortgage payment holidays. This was extended to buy-to-let mortgages.
A mortgage payment holiday is essentially a break from paying your regular monthly mortgage payment, usually up to three months. They are designed to help release any financial pressure on landlords should their tenants struggle to pay rent. However, it should be noted that the sum owed remains and mortgages continue to accrue interest during this period. Landlords should check the terms of the agreement, as applying for a mortgage payment holiday may harm any future borrowing.
Are landlords required to offer a rent payment holiday?
There was some confusion at the time of the announcement as to whether tenants would automatically be able to apply for a rent payment holiday. Media headlines were somewhat misleading by quoting that “Rent payment holidays of up to three months were available for tenants”.
Generally speaking, rent payment holidays may be an option for tenants to explore with their landlord, however, from a legal standpoint, a landlord is not required to offer or agree to a rent payment holiday.
Should landlords offer a rent payment holiday?
The government’s intention with the mortgage payment holiday announcement was to provide mortgaged landlords the option to apply for a holiday payment and pass on that grace period to their struggling tenant. This way, the landlord was not at risk of defaulting on their mortgage and their tenants were not at risk of rent arrears which may have led to eviction.
The government later clarified on March 26th that tenants were to continue to pay their rent and abide by all other terms of their tenancy agreement to the best of their ability.
Here is an extract from this announcement:
“Tenants should continue to pay rent and abide by all other terms of their tenancy agreement to the best of their ability. The government has a strong package of financial support available to tenants, and where they can pay the rent as normal, they should do. Tenants who are unable to do so should speak to their landlord at the earliest opportunity.”
We suggest that the decision to offer a tenant a rent payment holiday, rent reduction or a mix of both should be considered on a case by case basis. There is no ‘one-size-fits-all’ rule as everyone will be affected by the virus in their unique way.
My tenant is struggling to pay their rent, what are my options?
Early communication is key when agreeing to a rent payment plan. Tenants who are struggling to pay their rent should speak to their landlord as soon as possible. An early conversation can help both parties agree to a rent payment plan which may help prevent the tenant from falling into rent arrears and breaching the payment terms of their existing tenancy agreement.
If your tenant has approached you regarding their financial difficulties, first and foremost is to show compassion and empathy. These are challenging times for all concerned and emotions may be running high.
Having listened to your tenant’s request and established an understanding of their financial circumstances, you may have a few options to consider:
Option 1 – Rent reduction
For the most vulnerable of tenants who have no income, are not on furlough and have no choice but to apply for universal credit, consider a reduction in rent for a minimum of 3 months.
This has been a popular option for landlords ensuring tenants remain in situ, keeping properties occupied. A reduction between 20% to 50% could be appropriate depending on specific circumstances and the amount of financial support available.
Option 2 – Payment plan
For tenants whose financial circumstances require some leniency, you may be able to offer them a reasonable payment plan. This means that you still need the full rent amount, however, are open to receiving it over an extended period.
Option 3 – Mix of rent reduction and payment plan
You can consider a mixture of the above two options. A reduction in rent over a period of time and repayment plan if and where necessary.
Varying the payment terms of a tenancy agreement
If you’ve agreed to a change in payment terms with your tenant, it is important to document your discussions.
An addendum to an existing tenancy can include reaching a temporary agreement not to seek possession action for a period of time and instead accept a lower level of rent or agreeing a plan to pay off arrears at a later date.
If a landlord and tenant agree to a plan to pay off arrears, it is important they both stick to this plan and keep in communication if circumstances are likely to change.
If the tenancy is in a fixed-term or contractual periodic tenancy, the landlord can only change the terms of the tenancy if the tenant agrees and vice versa. If the landlord and tenant can agree to a payment plan or rent payment holiday, they should do so in writing.
To change the terms of an existing agreement, you do not need to create an entirely new tenancy agreement.
It is acceptable to create a Rent Payment Plan Addendum to your tenancy agreement and have the addendum signed by both parties.
What should be included in a rent payment holiday agreement?
A rent payment plan addendum to a pre-existing tenancy agreement should include as a minimum:
- The names of the landlord(s) and tenant(s)
- The let property address
- Reference to the existing tenancy agreement in place
- Start date and end date of the proposed revised payment plan
- The revised rent amounts
- Consequences in failure to comply with the revised rent payment plan
- Signatures of both parties
Once an addendum has been created, it can be sent by email to both parties to be signed.
Help with creating a payment holiday plan agreement
If you are a client of ours on a rent collection plan, we will work with you to create an addendum to your tenancy terms. This would include discussions with both you and your tenants and assist in negotiations.
For landlords who are not currently clients of ours, we have built a form which can be completed (free of charge) which will create a formal addendum to your existing contract (AST – England and Wales). It will indicate the change in rent for a specific term and can be sent by you to your tenants for signature.
The rent payment plan template addendum can be created online by clicking this link.
As per the government’s recommendations regarding self-isolation and social distancing, we recommend using a digital signature service such as Signable which allows you to quickly and securely sign documents online.