How to Minimize the Risk of Renting to Financially Irresponsible Tenants

Paying rent on time is the tenant’s most fundamental obligation under any lease or rental agreement. When tenants pay late or less than the agreed amount, they have breached the lease agreement, creating “just cause” cause for an eviction.  Once they are out of the property, landlords must determine whether its economically feasible to seek collection of unpaid rent and, if so, what methods should be used for that purpose.  Since these endeavors are expensive and time consuming, landlords must understand the best ways to avoid renting to a financially irresponsible tenant in the first place.

Tenant Screening

No one has a crystal ball and past performance is no guarantee of future results.  However, history has confirmed the importance of credit and background checks and employment verification in the tenant screening process when securing financially responsible tenants. 

Accordingly, landlords must always run thorough background checks on potential tenants and watch out for red flags. You should call all landlord references and ask them relevant questions about the potential tenant, including their rent payment history.  Always keep thorough documentation of the process. You should also highlight your no-nonsense rent policy (see below) during the screening process. Outlining that policy may discourage potentially bad tenants from going forward with the process.

Include Lease Agreement Provisions Relating to Non-Payment of Rent

Since a properly drafted lease or rental contract will provide the framework for any rent payment issues, its important to include a comprehensive clause addressing payment-related issues in the agreement.   

Some items to consider in your policy are: how and when payments should be made, the consequences of failure to timely pay, such as imposition of late fees or other consequences (including collections) if rent is not paid on time.  It is also prudent to at least consider whether to adopt a “no cash” policy, to ensure creation of a rent payment paper trail. Otherwise, your tenant may be able to move out with impunity, knowing it will be difficult or impossible for you to meet your burden of presenting a meritorious rent collection lawsuit in court.

The lease agreement should also address responsibility for processing fees, returned checks and non-sufficient fund fees, etc. Including a grace period has its pros and cons.  The main purpose of such a clause is to account for weekends, holidays, mail delivery services, and circumstances outside of anyone’s control.  However, it can also be used to artificially extend the time for paying rent without any adverse consequences.

Simply putting the policy in writing in the lease serves no useful purpose unless it is enforced.  While it may be prudent to consider and decline to enforce a one-time difficulty paying on time, remind the tenant that your policy will otherwise be followed to the letter and stick to your word.

Make it as Easy as Possible to Pay Rent

Studies have consistently shown that the easier it is to pay rent, the more rent will be collected.  So make it as easy as possible for the tenant to pay rent. 

One way to accomplish this is by setting up automatic deductions for rent payments, where the funds are automatically deducted from the tenant’s financial institution and deposited into the landlord’s account.  Setting up online bill pay is another effective method of rent collection.  A drop box could also be useful for increasing the likelihood of getting paid.

Communication is Key

Make sure to always keep an open line of communication with the tenant.  Keep all communication (electronic, verbal, or written) professional and appropriate. When discussing a tenant’s specific difficulties and payment plans, try to be as sympathetic as possible to encourage full disclosure.  You should use the dialogue to spot one-time lapses from those involving what could be a chronic problem of non-payment.   

Communication needs to be thorough, accurate and well-documented.  Always keep in mind that the communication could be material to the outcome of any subsequent lawsuit arising out of the landlord-tenant relationship. 

Contact Lynx Legal Service if you need assistance with an eviction, or any other landlord-tenant issues confronting you and your rental property.  Our experienced professionals are standing by to answer any questions you may have regarding the scope of our services and pricing.  We can be reached at 925-237-9216, toll-free at 888-441-2355 or by email at info@lynxlegal.com.  You can also schedule a free telephonic consultation with a representative by selecting the Calendly button on our website.