How can I protect myself against rent defaults?

Pillar 1: Selection – Trust is good, control is better

The most effective way to avoid rent defaults is to prevent high-risk tenants from moving in. Checking their creditworthiness is your most important task.

The debt enforcement register extract

This is the core of the examination. Absolutely demand the original document, no more than three months old.

• No entries: Ideal.
• Entries: Caution is advised here. Ask questions. Was it about a forgotten health insurance premium or loan debts? To avoid rental losses , you should consistently say no to applicants with high or ongoing debt collection proceedings.

The portability rule

Can the applicant even afford the apartment? A rule of thumb is: the rent should not exceed one-third of the net income.

• Request pay slips or confirmation from the employer.
• Anyone who disregards this rule and rents to someone who is financially "on the edge" will hardly be able to avoid rent losses as soon as the tenant receives an unexpected bill (dentist, car repair).

The reference information

To reliably avoid rent defaults , call the previous landlord (with their permission). The question "Did they always pay on time?" is the best indicator for the future. A tenant who left debts with the previous landlord will rarely change their behavior.

Pillar 2: Financial Security – The Buffer

Even with the best due diligence, life circumstances (job loss, divorce) can lead to tenants being unable to pay rent. To at least avoid or mitigate the financial damage caused by rent defaults in such cases, you need collateral.

The rental deposit (security deposit)

The law allows up to three months' rent as security.

• Make full use of this leeway! Anyone who only charges one month's rent has hardly any buffer.
• help avoid net losses due to rent defaults.
• Important: The money must be held in an escrow account in the tenant's name, never in your personal account.

Rental deposit insurance

More and more tenants are using deposit insurance (e.g. SwissCaution ) instead of depositing cash.

• For you as a landlord, this is fine, as the insurance company guarantees payment in case of damage.
• However, check carefully whether the policy actually covers rent arrears and not just property damage. Only then will it effectively help you avoid rent losses .

Pillar 3: Consistent monitoring – nip it in the bud

Many landlords are too lenient. The rent arrives on the 5th instead of the 1st of the month? "That can happen." But this is precisely where the problem begins. To avoid rent arrears , you need to be disciplined.

The 30-day period (Art. 257d OR)

As soon as the rent is not paid:

• Contact the tenant immediately.
• If no payment is received: Send a written reminder with a payment deadline of at least 30 days and a threat of termination (registered mail!).
• If the tenant does not pay within this period, you can terminate the lease with 30 days' notice to the end of a month.

Those who hesitate and hope here will fail. You can only achieve greater things then. Avoid lost rental income by starting the legal process immediately. Every week of delay is a week you're providing free housing.

Utilizing joint and several liability

Are you renting to a couple (cohabiting couple) or a shared apartment?

Make sure all adults sign the rental agreement.

• The key term is joint and several liability .
• If partner A cannot pay or moves out, you can demand the full rent from partner B.
• This is one of the most effective ways to avoid rent defaults , as you spread the risk across multiple shoulders.

Rent default insurance: The safety net

For landlords who want to be absolutely sure, there are special insurance products.

A rent default insurance policy kicks in if the tenant doesn't pay and the deposit is also depleted.

• It often covers up to 6 or 12 months' rent, as well as legal and eviction costs.
• This insurance costs a premium, but for landlords who depend on rental income (e.g. to cover their own mortgage), it is a powerful tool to avoid potentially ruinous rental losses .

Not every late payment is intentional. Sometimes a conversation helps. To avoid rent arrears , seek dialogue as soon as a payment is late for the first time.

Perhaps a payment plan could be agreed upon? Or an early termination of the contract so that the tenant can move to a cheaper apartment?

An amicable solution is almost always cheaper than a forced eviction. Proactive communication is an underestimated factor when it comes to avoiding rent losses .

Conclusion

The question "How do I protect myself against rent defaults?" is essential for your return on investment. There's no such thing as 100% security, but you can manage the risk. Anyone who wants to consistently avoid rent defaults can't compromise when selecting tenants. A month without rent is cheaper than a year with a tenant who can't pay.

Rely on the "Holy Trinity" of security:

• Strict credit check (debt collection extract).
• Maximum deposit (3 months' rent).
• Immediate dunning process in case of default.

Combine this with joint and several liability when there are multiple tenants, and you've created a robust system to prevent rent defaults . View renting objectively as a business: trust is something you can afford – control, on the other hand, secures your livelihood.

If you want to know the statistical default risk in your specific tenant target group, or if you need support in formulating legally compliant payment reminders, Loft offers professional templates and data analysis to protect your income.

Glossary

• Avoiding rent defaults: The entirety of all measures (audits, deposits, insurance) to minimize the risk of unpaid rents.
• Joint and several liability: If several people sign the lease, each individual is liable for the entire amount. This is an important measure to prevent rent defaults .
• Art. 257d OR: The article of law in the Swiss Code of Obligations that regulates payment default and forms the basis for extraordinary termination.
• Rental deposit insurance: An insurance solution for the tenant that replaces a cash deposit. It acts as a guarantee to the landlord.
• Eviction: The official process (eviction lawsuit) to remove a tenant who refuses to vacate their apartment by police. This lengthy process is something one hopes to avoid by preventing rent arrears .