Should she stay or go?

Yes I can see the trickiness of your situation. Of course, had this been the start of the tenancy you wouldn't touch a tenant like this with a barge pole, however with an established tenant it could be different.
There is a lot to think about, and I suppose it at least partly depends on your plan for when section 21 is banned, whether you would then be selling up or have another plan for the property.
For now though, in normal circumstances, I wouldn't evict a tenant on a 'might default' basis. That would be like a security guard in a shop saying 'that person looks dodgy, I'm going to arrest them in case they nick something.'
In the end though, like the rest of us, the scrapping of section 21 will bring down the curtain on any possibility of most tenants staying in any property.

I would formalise any new arrangements with either a new tenancy agreement or a codicil to the existing agreement and request your tenant provides a guarantor. This can all be done amicably in the interest of a win-win. I had a similar situation with a father/daughter, he moved out with his new wife but guaranteed the daughter who was on long term sickness benefits. All worked out well in the end...

I think you've answered your own question - If she's is a good tenant who happens to be in a vulnerable situation, then I would work with her. Partly from a 'decent human' perspective and partly good business sense.
She hasn't asked to reduce the rent and she's pro-actively suggested a strategy that would work. If you were to evict her you'd not only give a single mum and her kid issues (when it sounds like they have issues enough!) but you get rid of a tenant you know and give yourself a void.
Formalize the agreement and then treat it as you would any other tenancy agreement.
best of luck!

Drop the rent a little as a gesture of goodwill that won't break the bank, simple.

Thanks all. So far you have all vindicated my own thinking. My gut instinct was to work with her on this, but I was interested to hear if anyone had any 'howlers' on why this would be a bad idea. I think the picture above captures the situation (nice choice by the editor), there is risk but it sounds as if you all think, as I do, that it can largely be managed.

I rent to tenants on benefits where I have had very good long-term tenants and many of those that don't pay. In your situation, I would definitely keep her if and until she does not pay and then evict her if this happens.
It is pointless going through the eviction process at this point if she is paying as, you are likely to lose more in eviction costs, she might stop paying altogether if she is being evicted (where you could lose a substantial amount) and loss of rent due to property being empty whilst trying to find a new tenant.
To be on the safe side, you could serve a section 21 on friendly terms where, you could tell her that that you were advised to do this just in case she runs into problems where she is unable to pay the rent which you must have to pay your mortgage or, you yourself could lose the property altogether. Do make it clear verbally that you do not have any intention of evicting her if the rent is paid.
I would definitely not sign a new tenancy agreement and would just let the current one roll on. I cannot see a problem with her paying twice a month as long, as the rent is fully paid.

Reply to the comment left by Clint at 09/08/2019 - 12:23
Thanks for this. What is your reasoning for advising against a new agreement? Also what are your thoughts on the deposit? What if her ex-husband asks for it back?

I had a similar situation with a longstanding tenant who had previously paid late on numerous occasions. She had always blamed her partner, he had always blamed her. Anyway when he left, I went with my gut feeling and gave her the benefit of the doubt. She has been there for 4 years on her own with her children, has paid on time every month and even got some minor repairs done herself and wouldn't let me pay, 'because I've been good to her'.

Another time, there was a similar situation with a young single mum who decided to go self employed. After three months of erratic payments, where I could see she was really trying to keep up with payments due, paying small amounts as and when she earned some money, she decided to leave to go to live with her parents. She thanked me for helping and a few months later wanted to rent from me again.

Maybe trust your instincts on this one. Usually a woman will do whatever is necessary to keep her kids in a nice home. I know some don't, but I think if she's being communicative and trying to sort things out at this point, she will probably continue to do so.

The deposit is a vital aspect. I had a similar problem - tenant left behind after her husband left the country with no forwarding address. The tenancy continued completely problem fee until we authorised the return of the full deposit from the DPS. Because they hadn't been informed of the change in circumstances it took six months for her to get it back. Imagine if we as landlords had been claiming some or part of it.