So, you've had some problems with tenants. There are rent arrears and possibly damage to your property or other costs to be recovered. As any experienced landlord or property manager will know, the costs can soon rack up and leave you seriously out of pocket.
In New Zealand, tennacies are covered by the
Residential Tenancies Act. To be able to collect monies owed to you, you will first need a sealed Order from the Tenancy Tribunal, either following a Mediation session or a Hearing. It is beyond the scope of this article to discuss the ins and outs of the whole
Tenancy Tribunal process. We are going to concentrate on how to collect money owed to you once you have a sealed Order from the Tribunal. Remember, being 'right' and getting your money back are two different things. The Tribunal Order proves that you are 'right' and is a necessary step in collecting what is owed to you. It does not however put the funds into your bank account.
As with all debt collection, action is the key....if you do nothing, you get nothing. If you just sit there and wait for your ex-tenant to pay you, you may be sitting and waiting for ever.
Let's look at 3 key areas: Information, Choosing a Collection Agency, Collection Fees.
The more information you have about your tenant, the easier it will be to collect debt from them if this becomes necessary once the tenancy ends. The easiest and best way to gather information about the tenant is to gather as much good information as possible before the tenancy starts. At this stage, the relationship is likely to still be a good one and you can verify the information given to you before agreeing to the tenancy.
Key elements are:
A copy of their driver's license or passport.
Contact details of 2 next of kin not living with them. (You should verify these contacts).
This information makes it much easier to trace people who have moved on; to avoid confusion between people with similar names; and to avoid being caught out by dishonest people giving you false information.
If you did not gather this information at the start of the tenancy, gather as much information as you can, as best you can. Car registration numbers can be helpful, for example.
Key elements of a good collection agency are professionalism, persistence and thoroughness. Ask around, word of mouth recommendation will be the best way of getting on to the right agency. With tenancy debt, it is also a good idea to ask if the agency collects this sort of debt often and understands this kind of collection.
Agencies often specialise in certain things - maybe they focus on larger business to business debts, or consumer debt to big business. They may be a good agency for some clients, but not enthusiastic about collecting Tenancy Tribunal Orders.
Ask about field work. Do they go door knocking as well as have office based systems ? Efficient office based systems, including good tracing techniques, combined with field work, provide the most effective combination.
Avoid larger agencies who deal with huge volumes of debt. They will be unlikely to provide the level of thoroughness and persistence required to collect Tenancy Tribunal Orders. It is also wise to avoid agencies who use confrontational or unprofessional approaches. Engaging this sort of agency exposes the client to a variety of extra risks.
The new Residential Tenancies Act states that the Tribunal may award that collection costs be added to any amounts ordered to be paid by one party to another. We would recommend requesting this at the Hearing and making sure that it is included in the Order. Orders made under the outgoing legislation cannot have collection costs added, so any agency commissions would have to come off the total.
Depending on the details, industry standard collection commissions would normally be around 20 to 25% plus GST on all money collected.