• Being in arrears means being late with a payment
• Arrearages for a business may mean preferred shareholders get funds and dividends before common stockholders
• Arrears and arrearage are not the same thing

What is Arrears When Renting? Rental Definition and Examples

There comes a time in our lives that we get word of an unexpected situation that causes financial tension. It could be that the company we work for pays us late. Or, perhaps taxes or fees have increased on products or a service we didn't expect. Maybe a company suddenly changes how a customer pays them and needs payments in advance of its service. For example, we often see that a gym membership's accounting program has changed and members have to pay their fee in advance.

Whatever the reason, not getting paid on time or losing a source of income to pay rent could cause you to miss a payment which means you might find yourself in Arrears. Sometimes the term arrearage is thrown around, and we'll get into the legal definition of arrearage, too.

What is arrears? Arrearage?

Being in arrears refers to being overdue on payment owed to your landlord. Often, this payment is in the form of monthly rent. Arrearage has a slightly different definition.

When does arrears take effect?

The monthly rent payment is considered in arrears when the payment date passes. Some leases include a five-day grade period. If this is part of your lease agreement, then payment is considered in arrears once that grace period date passes.

Are arrears and arrearage the same thing?

Arrears is a legal term that is defined as debt that has not been paid by the due date and is now overdue. An example is someone falls $2,000 behind in paying their monthly rent. A non-rent example is someone is in arrears when they fail to pay monthly child support.

The legal definition of arrearage is a more general encompassing term. According to Cornell Law School, "arrearage broadly refers to being in arrears or owing a debt. There are two main uses of the term. One refers to payments in arrears that are meant to occur after they are owed, such as wages paid a week after time is entered or for invoices. Arrearage also can mean a person or business that is behind on paying bills, debts or other obligations. When being used in this form, arrearage often involves debts piling up over time, signaling a warning of insolvency."

Another example Cornell Law School provides of arrearage involves preferred stock. Arrearage, in this case, is where a business is in arrears but rather than paying back the owed funds to a landlord, the business has to pay owed funds to preferred shareholders. What about common stockholders? When in arrearage, preferred shareholders have priority over a company's income and are paid their dividend first.

Why making the monthly payment still matters

Being overdue on paying rent means you run the risk of eviction and you may find it difficult to rent another property if you're in arrears with your previous landlord. It can also affect your credit score. It's important to send word to your landlord as soon as possible and find a way to take care of your situation or figure out a payment agreement so as not go further into debt.

If your landlord refuses to accept your offer of payment to the arrears or doesn't even reply to your outreach efforts, you must continue making regular payments and meet your monthly obligations.

How do you get out of arrears?

1. First, get a handle on how many unpaid bills or accounts have to be paid.
2. Then, determine how much interest has accrued on those unpaid bills. Your lease agreement or contract may indicate the interest rate that would be applied after a certain period of time has passed.
3. Review your budget and financial liabilities. Figure out how much money you can afford to pay.
4. Reach out to your landlord to see if they're willing to make new arrangements with payments so you can get out of arrears. It might prove helpful to show your landlord your budget so they can see what you expect to have on hand in the future based on your current situation.
5. Some renters are able to schedule payments based on when they receive their payroll funds every couple of weeks rather than at the first of the month, for example. In this case, you can show your landlord you're able to pay equal amounts or within equal time intervals until you pay off your obligation over a period of time. Just remember to make note of making those payments once payroll hits your bank account. Also, keep receipts of every payment you make and the date it's made, especially if interest is accruing on unpaid rental payments.
6. If financial difficulties are due to an unforeseen emergency and you know you'll be back on track sooner than later, perhaps you can reach out to family members or close friends for a loan. It's never easy asking for money but if it's for a short period of time and you'll be able to repay quickly, it's an option worth considering. You can also offer to repay with interest if you can agree on a fair interest rate.
7. If it's clear you'll be struggling with payments, don't delay reaching out to services that might be able to help you by providing a loan, repayments or share debt advice. The sooner you reach out, the better because every day you delay payments means interest is accruing. In addition, your credit score might be affected and you may face legal fees. You're also considered in breach of contract once you miss making a payment by the due date or within your grace period.

What happens if I can't pay my arrears?

Bottom line: If you cannot pay your arrears and your landlord or leasing company is unwilling to consent to partial payments until you can get caught up, your landlord or management corporation can take steps to evict you.

Your rights as a tenant will vary based on where you live. A law firm might be of assistance and some offer pro bono assistance. Check out the web site of your local municipality for organizations that might have services to assist you and help you satisfy arrears.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.

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