When Pauline Harris's tenants stopped paying rent, she assumed in her innocence that they would be out in no time. After all, the tenancy agreement was a legally binding document, wasn't it? And if tenants didn't pay rent they had to go, surely?
Pauline, a first-time London landlady, soon discovered it wasn't quite that simple. Her tenants refused to budge, and it was another 15 months before court bailiffs finally evicted them. In the meantime, Pauline racked up over £5,000 on legal costs, and she daren't even begin to calculate the rent that is owed and will never be paid.
Would she have been better off if, for a £49 annual premium, she had taken out legal expenses insurance?
Credit-referencing agencies such as Homelet and Letsure are now offering insurance to combat non-payment of rent and other bad-tenant problems. Policies cover up to £50,000 of legal expenses, so long as an Assured Shorthold Tenancy is in place, and the tenants have had references taken.
Pauline Harris says: "I didn't know anything about this type of policy. My legal bills, which included a barrister, have been astronomical. Apart from non-payment of rent, my property was trashed and has had to be completely renovated. I daren't even think about what I have lost." For Pauline, the experience was so shattering she has put her flat on the market.
The majority of tenants are, it has to be said, absolutely fine. But when they're bad, boy, they're bad – usually all the way down the line. And when landlords begin legal action to evict them, or to recover unpaid rent, the lawyer's bill becomes frightening in a matter of hours.
Most firms of solicitors charge £150 an hour minimum; some quote £500 just to look at the paperwork, before they even bestir themselves on your behalf. With this in mind, legal expenses insurance can make sense.
What this type of cover can't provide, though, is guarantee of rent recovery. If the tenant absconds, or has no money – frequently the case with determined non-payers – the landlord will still be out of pocket. Courts can order payment, but in civil cases it's up to the complainant to enforce it. And if the tenant has no money, any enforcement order becomes a joke. Rent guarantee insurance is available, but that doubles the premium.
Could there be other solutions to this terrible problem? Mary-Anne Henningham, of the Taylor Trent Credit Referencing Agency, believes that a thorough credit check can eliminate most bad tenants.
She says: "We like to think that we can stand alone without having to offer insurance schemes. We have gone down the insurance road but we now feel that proper referencing is the answer. There is always a problem getting money out of bad tenants and when you embark on the legal or court route, there are endless delays. In the meantime, rent arrears are stacking up. The kinds of people who don't pay rent are always up to every trick, and we feel we can usually spot them before they do any damage.
"One tenant we were asked to reference recently checked out all right, but he just felt wrong. We communicated our gut reactions to the agency, but they still put him in. Of course, he never paid a penny in rent. The trouble is, so many landlords and agents will grab at unsatisfactory tenants, hoping for the best. Our level of reference acts as an insurance policy, and of course, it's much cheaper." Taylor Trent's detailed search, available to private landlords as well as agencies, costs £20, and a standard search is £10.
Landlord Jonathan Chippeck was so traumatised by the vast amount of money he lost on account of his bad tenant that last year he founded Landlord Action, a dedicated scheme whereby landlords can get ghastly tenants evicted speedily and cleanly for a fixed fee.
"We have a three-step process for getting rid of non-paying tenants. Step One costs £98 and involves one of our team actually visiting the tenant and serving an eviction notice. This works for most people, as we knock on the door and confront them.
"If the tenant doesn't respond within 14 days, we proceed to Step Two. This involves a solicitor issuing proceedings, setting a court date and instructing a barrister. Step Two costs £398, and if that doesn't work, Step Three means we sent in the court bailiffs to remove your tenant physically. This costs £152 and ensures the return of your property. If the tenant does have money, we can also arrange debt collection."
Chippeck believes that landlords are often their own worst enemies when it comes to unpaid rent. "Most are amateurs who don't like bothering tenants for rent. They just hope it will be paid next month.
"But I've learnt that tenants who miss one month will usually never pay again. They have to be chased up within a week, at most, of not paying. We will instigate Step One within 48 hours of an anguished call from a landlord.
"We are trying," adds Chippeck, "to educate landlords to be more businesslike. We are in court every single day, and deal only with rent arrears. In my view, insurance is expensive, and most people take it out without reading the small print. They can then find they're not covered, as the tenants weren't referenced thoroughly enough, or there's some other exclusion."
Homelet Legal Expenses Insurance: Helpline 020-8768 1616
Taylor Trent Management: 01476 514 695
Landlord Action: 020-8906 3838. Prices quoted exclude VAT.Reuse content