“I Can’t Pay the Rent”

Every landlord dreads the fact that at some point or time their tenants will not pay their rent.  The fact that they will not be able to meet their rental obligation can come in one of several ways, but it all boils down to they cannot pay.  

Hearing this news can give you a jolt, but your reaction most likely will consist of one of three options: 

1. Be hard, telling the tenant the rent is the rent - pay in full on time, or be evicted. 
2. Be soft, although that may mean the tenant never pays, and you are out of pocket forever.  
3. Find a middle ground, of which we will discuss now!

 
Logical Reasoning
You know that you are not going to go soft and let the tenant take advantage of your ‘good nature’ (bad business decision), and you do not want to evict the tenant (cost of eviction, vacancy, cost of obtaining a new tenant).  So, plan before the event happens!

Be proactive, this means being reactive ahead of time.  In doing so, you can manage and guide your decision making ahead of time.  This ‘standard’ will overcome an emotional reaction that might lead to a bad decision.  Remember, as landlords, our bad decisions have long-term consequences.
 
Governing Rules
The following are facts that you should use to establish your “I can’t pay the rent” criteria:

• Never to give a tenant an answer right away (upon the first phone call).  Even though you may know what you want to do, sit on the decision for a day.  Why?  First, coming back with an answer right away, especially if offering the tenant, a deal may mark you as a soft touch.  Second, waiting gives you a chance to think through the decision.
• Never let the tenant become more than one month behind in rent.  In doing so, if the tenant defaults on the special agreement, the lost is limited to one month’s rent.
• Insist that you have a face-to-face meeting with the tenant to discuss alternative ways that they can get the rent money.  The point of this is obviously to get the money, and to impress on the tenant that this is a serious matter.  This meeting must be at the tenant’s residence.
• At the meeting if you feel that you can work with the tenant, offer them a written special agreement.  If you cannot work with them, inform them that they have three days to pay or you will serve them with an eviction notice.
  • If you give them a special agreement, explain to them that this is a temporary change to the lease, and must be signed by them.  That this is a one-time agreement and that it will not be repeated.
  • Explain that if they do not adhere to the agreement, they will be evicted. 
  • The written agreement should also have a confidentiality clause because all tenants talk to each other.

 
Should you treat everybody the same?
No, thank goodness.  You can treat people differently, within reason.  For example, come down much harder on a tenant who has performed badly in the past, or who has a history of late payments.