The Delinquent Tenants File (FIM) reveals a worrying situation for landlords: incidents of non-payment of rent increased by 380% from mid-March this year until June due to the health and economic crisis generated by COVID-19.
A reality that has alerted rental property owners, worried about the magnitude of these figures and fearing a second wave. How should owners react to this complex and uncertain panorama? What steps should they take to avoid future rent arrears? How non-payment data has changed with the alert status.
From the third week of March, coinciding with the limitation of citizen mobility, incidents reported by owners doubled compared to the previous week. The crisis caused by the expansion of COVID-19 has had an impact on all economic areas and, consequently, on rent arrears. The instability of employment has caused concern for many landlords who fear they may suffer a case of late payment of their rent. Sergio Cardona, director of studies and quality of the file of delinquent tenants (FIM), explains that since the second half of 2018 there has been an upward trend in landlord fears.
He also points out that the figure recorded in the last six months for defaults is the highest in the historical series. “With the state of alert, and the obligation of confinement of citizens, uncertainty has increased in the areas of work and the person, leading to non-payment and delay of rents”, underlines the FIM . In April, almost half of the contracts (43%) audited by FIM reported a payment impact. However, this does not necessarily mean a defect, as it may be due to a simple delay. Defaults as such reached their annual peak in the second week of May, at the height of the de-escalation, when 17% of landlords said they had not collected rent, sparking concern owners. “This increase in crime figures has been a major concern for most landlords who have rental property,” says Ferran Font, research director of Pisos.com.
“Having a delinquent client is usually entering into unfamiliar territory for the owner. Therefore, given this scenario, we recommend consulting legal counsel first. Although, obviously, the situation is not not the same for a request for payment a few days late as for one or more months of unpaid”. How to deal with non-payment of rent Fear of rising default figures has led landlords and professionals to gather as much information as possible about those interested in the property. In addition, Law 29/1994, of November 24, on urban rents guarantees a series of rights to the owner so that he can protect himself against future problems with tenants. However, Font points out that when renting an apartment, it is not always possible to find the ideal tenant. “Given the possibility that this type of problem will continue to arise, there are specialized companies that offer insurance against non-payment of rent, which would reduce the risk of possible future delays in payment,” explains Mr. Make. But what if the failure has already occurred? Font recommends that when dealing with the tenant, the most desirable thing to do is to resolve the situation amicably, so initial contact with the tenant for this purpose should be the first step. “In the event of non-payment, the first contact should be by telephone or in writing and, if there is no response, the complaint should be made by a reliable means, for example by sending a bureaufax”, says Mr. Font. “If the friendly negotiation does not succeed and the situation is not resolved, the landlord can go to court to claim the unpaid rent, terminate the contract and request eviction or both. In the event of eviction, it must be taken into account that the lawsuit will entail an additional cost. Another thing to consider is the option of a quick resolution if the landlord agrees to cancel the debt if the tenant moves out. For his part, the tenant has the option of paying the entire debt by a security deposit in court or before a notary.
With Rendez-Vous Immo, we have adapted to this situation by being much more rigorous and experienced following two tenants being in a complicated financial situation in the face of Covid. A Brazilian football player with his wife and children who was to be paid by match bonuses and part-time gardening. And the second case with a coach of a football club located in Gibraltar. A first case who found himself in financial distress, and a second tenant whose club demonstrated all its dishonesty. Out of 28 rental contracts signed since the start of the year, these are the two cases that have been difficult to resolve.
Our strategy at Rendez-Vous Immo is to provide you with all the guarantees in order to receive a maximum of requests, and thus to be able to select the right tenants for you. A video and photo report positioning your property in the first search results on Idealista, YaEncontre, FotoCasa, Instagram, Marketplace. This obviously works provided that your property is at market prices, and knowing that rents have fallen between 16 and 18% depending on the sector, more in areas hosting a majority of tourists.
To be able to guarantee you good candidates, we systematically ask for an employment contract and the latest payslips, or to present financial guarantees with payment three months in advance. We have decided to reduce rental contracts in installments of 3 months renewable and paid in advance, which allows us to remain within the legislation of Short Contracts, and to have much fewer constraints if a difficult situation arises. We also advise you to be vigilant with tenants coming from Gibraltar, because the funds are impossible to recover, or the lawyers’ fees are too expensive to be able to sue tenants who do not have a Spanish bank account.
If you too would like to entrust the rental of your property in Estepona, Marbella, Manilva or Casares, I invite you to contact me on +34 676 86 22 50. Stephen.