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How much do Americans owe in back rent?

Roughly 28% of renters entered 2021 with unpaid rent bills carrying over from 2020. Estimates for the total back rent owed by all renters by the end of 2020 are as high as $7.2 billion. Roughly 60% of landlords have tenants struggling to pay their rent.

Of course, your experience may vary. You may have a single rental unit with long-term tenants who have pandemic proof jobs. You might also be unlucky enough to have multiple units occupied by tenants from a large local employer who shuttered their doors early in the pandemic.

The number of Americans who owe back rent tells you two things. First, you are not alone. Second, if you do need to pursue back rent, there might be delays in the legal process. This is because eviction moratoriums are still in place nationwide, at least until the end of this month, and courts need time to work through all of the cases that have been filed. 

What is a Rent Repayment Agreement?

Many landlords are willing to work with their tenants, especially when tenants are unable to pay because of circumstances beyond their control. Your tenant might be waiting for their job to reopen, have a new job lined up, or be in line for government assistance. Getting a good tenant caught up on rent can also be more profitable long-term than going through the eviction process and trying to find a new good tenant.

A Rent Repayment Agreement is an agreement for the tenant to catch up on rent. It serves four purposes.

  • It gives the tenant a formal pause on the eviction process so they don't have to worry about being evicted.
  • It makes it clear that the landlord isn't waiving their right to evict or pursue other lease remedies in other circumstances not covered by the Rent Repayment Agreement.
  • It creates a clear timeline for the tenant to catch up on their rent payments.
  • It can define consequences for the tenant not following through on the payment plan, such as agreeing to move out or losing any waiver the landlord gave on late fees or other penalties.

For example, let's say your tenant is two months behind on rent but will be back to work soon. You sign a Rent Repayment Agreement allowing them to pay 25% of the balance in each of the next four months in addition to their usual rent. You agree to waive late fees if they make all payments on time. If the tenant misses a payment, they agree to end the lease and move out.

How might incorporating as an LLC help landlords access important COVID Relief funds from the SBA?

While you're waiting for your tenant to catch up on rent, you may still have to pay your mortgage, taxes, and other expenses. One way to handle these expenses is to take advantage of the Small Business Administration's (SBA) COVID Relief funds.

When you apply, the SBA will request business financial statements and possibly additional information such as your business plan. Sole proprietorships are eligible, but the problem that many small landlords face is that they co-mingle their business funds with their personal funds. This can make it hard to demonstrate your financial need for the funds since they must be used for business purposes. Incorporating as an LLC requires you to keep a separate set of books and records exclusively for your business so that the SBA can clearly see that you have a properly operating business in place.

Are there other ways landlords can get a break when tenants can't pay rent?

While the government has provided relief for individual renters, such as eviction moratoriums, landlords have largely been left behind. Many property tax extensions only apply to homeowners in their primary residences, although some areas are extending the extensions to small landlords. Even if your jurisdiction doesn't have a formal waiver in place, you should ask about payment plans or other potential options.

Insurance is another major expense landlords face. Insurance companies may be willing to offer a payment plan or switch you from annual to monthly billing. If your rental property is unoccupied, ask about a potential premium reduction until you find a new tenant.

Similarly, if you have a mortgage, you may be able to work with your mortgage lender on a payment deferral. Be sure to find out whether the payments will be added to the end of your mortgage or become immediately due at the end of the deferment period.If you need additional help exploring your legal options or how to work with your tenants on catching up on rent, reach out to a Rocket Lawyer On Call® attorney for fast and affordable advice. If you are considering incorporating as an LLC, contact our Rocket Lawyer incorporation experts.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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