Calculating Interest on Rent Arrears

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    #16
    Originally posted by mariner View Post
    Credit card Co's?

    It has been debated on this Forum that applying a daily late payment charge is 'unfair' but a charge of £12 for each month rent is paid late as per CC & OFT guidance is prob acceptable. CCs then charge interest on the overdue amount at around 1.5 - 2% / month.
    I accept I am the Bank of Mum & Dad, but I don't have a banking licence to lend money to anyone else for holidays etc.
    That arrangement was a bit of a fudge. Ironically the OFT went to court over bank charges where they were bound to lose and not over CC charges where I think they stood a better chance. Financial services are not in any event a good model.

    What it comes down to is that letting involves administration which includes credit control and you cannot charge the tenant for it. If you want to ensure the tenant pays on the time the way to do it is to offer an incentive.

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      #17
      Originally posted by Lawcruncher View Post
      If you want to ensure the tenant pays on the time the way to do it is to offer an incentive.
      ''If you pay your rent on time, I will let you carry on living in my property beyond the fixed term' seems like a good incentive to me!
      'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

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        #18
        I have a clause in my contracts offering £50 if rent is always paid on time - having found charges for late payment are illegal in Scotland : Since having that clause all payments on those relevant tenancies have been on time!

        Yeah, I was surprised also.
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

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          #19
          Originally posted by jjlandlord View Post
          Which could very well be equivalent, or more, than charging 8.5% on late rent.

          I still think that 8.5% is perfectly reasonable and will continue to do so until a judge says it is not.

          From the OFT document: "In this example, x is an interest rate that reflects a genuine pre-estimate of the reasonable costs that late payment by the tenant will cause the landlord to incur."

          As posted before, should a tenant owes £1000 if the LL charges 8.5% pa. on it, it is equivalent to 23p a day.
          If we consider that £10 per reminder letter is reasonable, then at 23p a day the cost of the letter is covered only after more than 43 days.

          Two possible conclusions:
          - Either 8.5% is actually cheap
          - LL should not charge interests but a fixed fee.
          I have to say that I'm in agreement with you. I think also that it's generally underestimated the amount of costs incurred in chasing up late rent payments. The time involved (I recently wasted the best part of a day going from one end of London to the other trying to get outstanding rent, [having already made arrangements]only to be told at the end of the day that he could not meet me), the cost of phone calls/text messages/travel costs etc. are all expenses that easily amount to more than whatever would be payable from the 8.5% from the original outstanding rent arrears.

          Btw, thanks for the original response and to everyone else for their opinions; much appreciated.

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            #20
            Thanks LC. I see the point.
            I shall conclude that it may be better to charge reasonable costs rather that interests. Probably simpler to manage as well.

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              #21
              Originally posted by jjlandlord View Post
              Thanks LC. I see the point.
              I shall conclude that it may be better to charge reasonable costs rather that interests. Probably simpler to manage as well.
              Remember that the reasonable costs need to be reasonably incurred.

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                #22
                Hi,
                If you go to Directgov website scroll to how to calculate money owed, it clearly states that 8% is the norm. But that might only be after you obtain a court judgment?

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                  #23
                  I think so.

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