The Collection Advisor

Landlord & Tenant Debt Collection 101: Avoiding Rental Property Disasters

Posted by Brian Summerfelt on Jun 19, 2017 8:53:24 AM

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My strongest advice to most people considering becoming a landlord?

Don’t do it.

Seriously, for the few much-hyped benefits (regular income, having someone else pay your mortgage) there are myriad pitfalls: runaway tenants, damaged and destroyed property, disruptive parties, late payments, broken contracts, unauthorized sublets and even basement grow-ops. No one should consider putting a house, room or condo for rent without knowing the risks—and how to collect the almost inevitable overdue rental arrears.

In each province there are distinct sections of legislation, mostly written to protect the tenant’s rights over than those of the landlord. So in the case of any third party dispute resolution, you are the big, bad property owner and shouldn’t expect much in the way of fairness. Still, there are benefits to owning investment properties, and more and more Canadians become landlords every day. In cities like Edmonton and Brampton, municipal governments are rewriting bylaws to make it easy to legally add garage and basement suites in the interest of increasing central population density.

If you are among the growing ranks looking at adding rental property revenue to your income stream, here are some important steps you need to take:

1. Become a Tenancy Expert
Do all you can to educate yourself and get to know your province’s residential tenancy legislation like the back of your hand. Tenants know how to use the Internet too, and can easily come up with incorrect or misleading information. Showing that you are well versed in local tenancy laws can work to your advantage in keeping everyone in line.

2. Bank on Vacancy
If your cash needs are dependent on having your property rented out 100% of the time, you are set up for trouble. Not only are some periods of vacancy to be expected, but you cannot risk taking on less-than-qualified tenants out of desperation. If you are able to meet expenses with 25% vacancy, you should be able to weather most droughts and be selective when placing tenants.

3. Screen Tenants Diligently
Use a tenant application form (see my next point) that asks for all relevant information, including the applicant’s full name, any previous names, prior addresses, employment contacts and credit references. Pre-screen by telephone, and perform in-person interviews with great care and attention. This is your opportunity to assess the applicant’s fit, attitude toward prior landlords, consistency with the application and even cleanliness. I once knew a landlord who made a point of looking at the interior of the vehicle driven by would-be tenants to see how neat they kept it. Do what you can, within ethical boundaries always, to get a clear idea how well-suited the applicant is to your valuable real estate investment. Pass on any that are not a fit: other rental accommodation operators will be better suited to risky tenancies.

4. Check Those References
Don’t rely solely on your instincts and the information provided by the applicant. Always call tenant references to find out payment history, probe for risk factors and establish a good fit with your style and requirements in a tenant. You can join the BC Landlords Association, the Alberta Landlords Association, the Ontario Landlords Association or the Quebec Landlords Association and run tenant credit checks and even criminal record checks. Those associations also offer a wealth of resources including rental documents and forms.

5. Have a Great Contract
Boilerplate rental applications are better than nothing, but that’s not saying much. Having your own custom-written contract can save a lot of grief and money, especially if you are renting a property furnished or it’s your pride and joy. Include specific terms related to parking, property maintenance (such as if the tenant is expected to remove snow or mow the grass) and how the contract is renewed. Note that with any discrepancy between your contractual terms and the province’s residential tenancy act, the law will always prevail. As with any contract, it’s wise to consult a lawyer familiar with tenancy law.

6. Use Direct Deposit for Rent 
Some old-school landlords still accept post-dated cheques, but the best way to take payment is to use EFT (Electronic Funds Transfer) for direct payment. It takes little time to manage, and enables you to withdraw the rent payment directly from the tenant’s bank account when due. The tenant must still ensure funds are present in the account, but knowing the payment is automatic can be a strong incentive. Be sure to specify NSF fees in your contract.

7. Be Vigilant
Keep an eye on the property. It’s an asset worth hundreds of thousands of dollars, and although occupied by your tenant it remains your job to protect it. As a Regina man recently discovered, insurance companies may not cover tenant-caused damage. And in some cases where tenants may have vandalized a property before abandoning it, it has been impossible for the landlord to prove the damage was done by the tenants and not a subsequent intruder. You are entitled to do periodic maintenance inspections, provided you give the tenant a minimum written notice, usually 24 hours. Be sure tenants are respecting your property.

8. Act Quickly
When things are going wrong, don’t hesitate to take action. If rent is due on or before the first day of each month, deliver out an eviction notice on the second if it fails to arrive. It is the tenant’s responsibility to get the money to you, not yours to collect it. Landlords who end up months in arrears are setting themselves up for problems, and won’t find much sympathy from the courts.

9. Be Prepared to Escalate
Don’t take difficult matters or potential violent conflicts into your own hands. If tenants refuse to vacate, you will need to get an eviction order, or use an eviction service. Many municipalities offer dispute resolution specifically for tenancy issues, and these are generally much speedier than the provincial courts. Often you can be heard within days and receive a binding resolution, possibly an eviction order that can be used to send in the Sheriff. Show up with all documentation, including contracts, photos, copies of notices and other evidence.

10. Collect What You’re Owed
Landlord and Tenant debt collection is one of the most difficult kinds, because virtually every case is what we call a “skip,” by the time it needs collecting, meaning the debtor has changed addresses and may be hard to locate. Collecting tenant debt can be labour-intensive and very difficult, and very few tenant debt collection agencies can do it effectively–or even want to take the risk. MetCredit is one of those. Having a complete rental application and contract can dramatically increase your collection agency’s likelihood of success.

If you have questions about collecting debt from commercial or residential rental property tenants, we’re always happy to help. Give us a call at 1-888-797-7727 or shoot us an email. Don’t forget to also download my 10 free pro tips using the link below for more guidance in avoiding bad debt.

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Topics: Landlord & Tenant Debt Collection