How to deal with a defaulting tenant

Tenants and property owners usually have a love-hate relationship. This is because, while each needs the other, at times, delaying and absconding from payment, and the pressure that arises spoils the broth.

When a tenant defaults on payment, it is as good as a customer who consumes an item, makes no payment but keeps coming back for more. That is not only disrespectful but also infuriating.

However, eviction is not always the solution. Simon Muhangi, the managing director of Fountain Real Estate, says, “There was a time when you could let  a tenant go and in no time, someone else was seeking to fill the vacant house. Then Covid-19 happened, you are not assured of another tenant, especially one that will promptly pay since we were all affected,” he says.

That said, Collins Oduka, senior estate officer at NSSF, says there are many ways of dealing with tenants who do not pay rent on time.

Oduka says it must be noted that the risk of being overly accommodative will result in debt accumulation beyond the means of an already struggling tenant to pay. “A prudent landlord should therefore be able to read the signs and amicably agree with a struggling tenant to terminate their tenancy before they plunge into a lot of debt. Such debt often times is very difficult to recover even by legal means.”

Agreements

Esther Musinguzi, the research and development officer at Wilkins property services, shares the different ways they deal with tenants which starts with a tenancy agreement. “We give every new tenant this document which states all the regulations on maintaining the house and in regard to the tenant, how to pay.”

Their payment model stipulates that tenants ought to pay in the month they are using the house not the previous. “We could say, we prepay for our homes but also welcome upfront payments. In light of that, an sms is sent to tenants on every 28th day of the month reminding them to ensure payment is done by 1st of the next month. We further give them an allowance of up to the 5th because we know that money won’t always come in on time,” Musinguzi explains. Thereafter, the utilities are disconnected starting with electricity.

“However, if the tenant communicates and gives genuine reason for the delay, the disconnection is halted for while we desire to be prompt, we also listen to our tenants. Even then, the grace period is only three days.”

However, Musinguzi says there are tenants who become elusive when they reach out to them, to the point of closing their house when estate visits are done. “If all means of communicating with the tenant have failed by a month’s time, as per our agreement, we liase with the area police, LC chairperson or our company lawyer to open the house and do an eviction. This means getting their property and taking it to our stores. We then give the tenant another month to show up. All this is in the agreement.”

Termination

A month later, if there is no communication or appearance, the company sells off the property to realise the landlord’s rent. However, if they show up before the month elapses, a memorandum of understanding (MoU) is signed after inquiring if they are still in position to pay for the house.

“Usually, people fail to pay because of problems such as job loss, so we need to hear from the tenant. If they are not, we ask if we can get them a cheaper house because we have houses of various prices.” Nonetheless, whatever the response, the former house is closed off after ensuring arrears have been paid off. “When settled amicably, we ask that if they cannot get the money, they give us something of value such as fridges, TVs to cater to the rent.”

Oduka says evictions can be avoided if a tenant is prudent. “When faced with difficulty, it is great to reach out to a landlord beforehand, explain your situation and give a written commitment, subject to landlord approval.”

Negotiations

With the way Covid-19 has ravaged our financial muscles, Muhangi emphasises the landlord and tenant must be able to communicate. “Where one has lost a job or business is slow and thus cannot pay in time, discussion is the way forward. It is what I had to do for the properties I manage where we agreed that people pay in installments. As such, even those in arrears, tenants paid whatever they had into the landlord’s account until they had cleared.”

He adds that ideally, rent must be paid in a lumpsum, either a month or three in advance but they have had to allow them to pay their monthly rent in bits to avoid arrears. “As such, communication is important, tenants ought to be clear to their landlords, stating why they cannot pay in time.”

Oduka says it is not uncommon for a landlord to agree to a period of time in which the tenant must fulfill their rental obligation which usually is equal to the security deposit held. “Unfortunately, this often doesn’t even cover the rental amount after factoring in reinstatement costs. That said,the type of tenant will usually determine the course of action. For example, a government tenant will most probably pay all arrears accrued before the start of a new financial year, provided you are following up with the relevant people.”

He adds that one can also request for postdated cheques written in favour of the landlord to curb late payment.

That said, Oduka says one of the most effective ways of dealing with late payment is by constantly reminding the tenant in writing. “This keeps a tenant fully aware of their rental obligation and will create a culture of timely payment.”

Summarily, Muhangi stresses that every landlord has built structures to be rented with an aim of earning money. “If they cannot earn, it ceases to be business. Where tenants cannot discuss the reason for late pay or defaulting so as to work out a payment plan, or do not honour their promise, eviction is the next step.”