What to do When Your Tenant Can't Pay Rent?
We are living through an unprecedented time and many of our previously established protocols are being adjusted to match the projected needs of our clients living through the current COVID-19 pandemic. Typically, when a tenant is unable or refuses to pay rent, we will begin the eviction process. However, given the fact that many Canadians are facing the same struggles during the pandemic, and the Ontario government has temporarily halted evictions, we must be active in finding the best solution for all parties involved.
First, we encourage all landlords to take an empathetic position if and when a tenant has trouble making rent payments. As we are all social distancing to minimize the spread of COVID-19, the loss of jobs and income are real possibilities. We would recommend taking the following steps:
Understand that most job/income losses are temporary. This means that while the tenant may have trouble paying you rent this month, try to take a more macro view of your rental relationship. If the tenant has been reliable for rent payments, keep that in mind as they will likely continue to be reliable in the future.
Assess your own financial situation. Landlords have a bevy of expenses to deal with including mortgage payments, common element fees (if condo), property taxes, and general upkeep of the property. Are you able to weather 1-2 months of nonpayment or lowered payments from the tenant? If not, try to see what help is available for you as well. Many banks are offering mortgage deferred payments, which could definitely help with your current cash flow. If your normal source of income has been impacted, take a look at the Canada Emergency Response Benefit to see if you apply.
Communicate with the tenant. It’s very possible that the tenant is unable to make their full rent payment this month; however, they may be able to make a partial payment. Try to find a middle ground that puts the tenant in a position where they still have money for other needs, but also allows you to handle your expenses.
Establish a rent deferral plan. While we want to be helpful to the tenants, we also have to ensure that a plan is in place. We suggest working with 3-6 month time frames. That is, if the tenant predicts that they will be affected by COVID-19 for two months, set a plan that allows them to pay a lowered rental amount for two months, followed by four months of increased rent to cover the deferred amount.
Review the plan every few weeks to assess its current feasibility. Our world is changing very quickly as COVID-19 cases increase exponentially and scientists are actively searching for a vaccine. It’s possible that the original plan may not be realistic after a month or two. Be prepared to amend the plan moving forward, by either spreading out the deferred payments over a longer period of time, or reducing the payments for more months.
As a community, we must help each other through these troubling times and with many of the government programs, the underlying message is this: it is smarter to work together with your tenants, instead of putting them in a position where they cannot pay rent at all. Our goal at Clavis Property Management is to manage and grow our clients’ real estate investments, but also use our privileged positions to help those less fortunate. We are optimistic that we will return to our normal lives soon, but in the meantime, we hope that landlords will join us in offering a helping hand.