In a previous post I set out my thoughts on the best way to deal with the Mar / Apr 2020 month-end under Lockdown.
Here’s the post if you haven’t read it yet: Rentals in Lockdown #5 (Mar/Apr 2020) | Rentals Month-End – Lockdown Style
In Step #5 of that post I spoke about negotiating and documenting rent arrears repayment agreements.
I’d like to expand on that a bit . . . .
I am seriously of the opinion that it is very difficult – and may not even make practical sense at this point – to actually document a rent arrears repayment or deferment agreement yet.
At this point you will know the extent of any arrears to date – including specifically arrears as a result of the most recent month-end.
So, why not now negotiate and document a repayment arrangement?
Well, the basics for any agreement would be to know how much is owed, how much the debtor is able to pay each month, when payments will start and the amount and frequency (or dates) of each payment.
Let’s look at each of these factors.
Amount of Arrears
We know the amount total arrears at this point in time. However, what about the coming month end – i.e. Apr / May 2020?
Most people earned money in March and should have had money to pay their April rent – after all Lockdown only kicked in at the end of March.
April is a totally different matter though – we will be in Lockdown for at least half of April – assuming that there is no extension!.
Pure logic would lead one to expect that there will be many more people that will be unable to pay their May rent in full and on time, resulting in a very significant increase in arrears figures – both the number of people that will be in arrears, as well at the amount owed by individual – by early May!
I’m not being pessimistic here – I believe it’s realistic!
Affordable Repayment Amounts
It’s incredibly important that the debtor is able to afford the repayment amounts when documenting a plan – it has to be realistic and achievable!
I simply do not think that most debtors are able to determine an ‘affordable repayment amount’ at this point because there are still too many uncertainties, for the following reasons:
- there’s speculation that Lockdown may be extended
- the debtor’s employment situation may have changed, or may still change (depending on whether Lockdown is extended, for example) and this could affect their future earnings
- many people are commission earners, self-employed, etc and there will be a lag, or delay, between them returning to work and actually receiving income. In addition to the ‘normal’ lag, there is also the uncertainty about how their client base’s financial position would have changed due to the current circumstances and how that will affect their potential earning potential.
A repayment agreement requires a date of first payment, as well as the frequency of further payments, at the very least.
Given the above factors and uncertainty, as well as, most importantly, the uncertainty about whether Lockdown will bee lifted on 16 April, or possibly extended, I simply do not think that there is enough certainty yet to put together a practical and achievable repayment agreement.
So, what do I propose?
I’m assuming that you have sent out LOD’s for rent arrears. If not, you need to do that asap.
Once the LOD’s are out I would really go into a ‘holding pattern’ of sorts – after all, a minimum of 20 business days need to pass before the Landlord needs to take any further decisions – one of their decisions could be to give the tenant an indulgence and extend the 20 business day period in the LOD.
I believe we need to wait until we are out of Lockdown at the very least before committing pen to paper, It may even make more sense to wait until after 1 May 2020 so that arrears for May’s rent can be included.
Debtors need to have had the opportunity to ‘take stock’ of their position and earning potential – only then can a practical and achievable repayment plan be drawn up and signed.
I hope and trust you found this information useful. Please feel free to post any questions you have below and please feel free to share this post if you know of anyone else that might also find it useful – or share on Facebook or Twitter by clicking on the share links below.