For rental property owners, the rent paid by tenants is the foundation of income. However, one issue that troubles many landlords is rent arrears. If the payment was simply forgotten and is made promptly, there is usually no problem. But when arrears become prolonged or recurrent, a proper response is necessary. In this article,we explain the causes of rent arrears, how to respond, and the risk measures that can help prevent them in advance.
What are the main reasons rent arrears occur?
There are a variety of circumstances behind a tenant falling behind on rent. For owners, the first step is to understand the situation accurately.
Reduced income and limited financial capacity
The most common cases are those in which payment becomes difficult because income has fallen, such as reduced overtime, maternity or postnatal leave, or lower wages caused by worsening business performance.If income levels have declined on an ongoing basis, there is a possibility that arrears will continue to recur.
Forgotten payment or exceptional circumstances
If the tenant was traveling on the payment date or was unable to respond because of a sudden illness,there is usually both willingness to pay and the necessary funds, so payment is often made promptly once contact is establishedin most cases.
Psychological reassurance created by a guarantor company
In properties that use a guarantor company, some tenants feel reassured that the guarantor company will temporarily cover the payment even if they fall behind,which has led to more cases of relaxed attitudes resulting in arrears.The overdue amount is ultimately billed to the tenant, but it is important to note that the sense of immediate urgency can easily fade.
What steps should be taken when dealing with a tenant in rent arrears?
Direct reminder to the tenant and sending a demand notice
Once arrears are identified, first remind the tenant directly by phone or in person.Confirm when payment can be made, set a specific deadline, and wait until that date.If you cannot reach the tenant, place or mail a demand notice stating the unpaid rent, the bank account for payment, and the amount overdue.
Contacting the guarantor and sending a certified demand letter
If arrears continue for more than one to two months after the reminder and demand notice are sent, contact the guarantor. If the situation still does not improve,send a formal demand letter by certified mail. This can stop the running of the statute of limitations for six months, and if legal action is taken during that period, the limitation period can be extended to ten years.
Litigation and forced eviction as a last resort
If arrears continue for three months or more and the landlord’s claim is accepted, a court decision may be issued in as little as about two weeks.Because the overdue amount increases when filing suit is delayed, early judgment and execution are important.It is also necessary to factor in the risk that the full amount may not be recovered, because the cost of forced eviction can range from hundreds of thousands to several million yen.
What measures can help prevent the risk of rent arrears in advance?
Using a guarantor company
The most effective form of risk hedging is to use a guarantor company.A major advantage is the ability to recover rent reliably if arrears occurbut the scope of coverage and screening conditions differ by company, so the details should be checked in advance.
Checking the guarantor’s financial situation during tenant screening
Even if the tenant does not have the ability to pay, recovery may still be possible if the guarantor does.A basic step in reducing the risk of arrears is to carefully verify the guarantor’s income and financial condition during the tenant screening stage.
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Frequently Asked Questions (FAQ)
What is the legal statute of limitations for rent arrears?
The statute of limitations for rent arrears is five years. However, a certified demand letter can suspend it for six months, and if legal action is filed during that period, the limitation period can be extended to ten years.
What should you do if there is no guarantor?
A contract with a guarantor company can serve as a substitute for a guarantor. It is common to use the guarantor company partnered with the property management company.
Is forced eviction possible after three months of arrears?
Continuous arrears of three months or more are often recognized as a breakdown of the relationship of trust, and if the landlord prevails in court, forced eviction can be enforced. However, the actual enforcement process takes several months.
Should you use a property management company to negotiate with a tenant in arrears?
Because this requires specialized knowledge and practical know-how, it is common to entrust the matter to a property management company. In particular, when litigation or other legal procedures are involved, coordination with specialists, including attorneys, is indispensable.
