Weekend Argus (Saturday Edition)
Landlords must beware losses
But fair rentals keep clients satisfied
WHILE investors who buy to let are an important component of the property market, most buyers want a home to live in, and have no intention of ever letting their property.
But circumstances change, and the increased mobility of South Africans in the current economic environment means more owners are contemplating becoming landlords.
“More homeowners are relocating within South Africa in search of work, or taking up offshore contracts,” says Greg Harris, chief executive of Chas Everitt Property Rentals. “We expect this trend to accelerate as South Africa feels the effects of its junk status.
“However, because of the time it takes to find buyers at the moment, many of these owners are opting to hang on to their properties and rent them out until they return – or until the economy becomes more favourable to sellers.”
Harris recommends that people renting out for the first time find experienced letting agents to help them negotiate letting their properties.
Availability and fast uptake of technologies such as Airbnb or HouseME, both industry disruptors providing accessibility to new rental management products, has seen owner-managed rentals become the norm.
If you opt to use an agent, Harris suggests you give the agent a clear, written mandate and detail the role you want the agent to play.
“Is it to advertise, let the property and collect rent? Or will they also be responsible for checking potential tenants’ references and creditworthiness, and for maintenance and checks to see the property is kept in good repair?”
The agent can help the landlord set a reasonable rent, use appropriate lease agreements, do a proper assessment of the state of the property and ensure the tenant is paying the correct deposit.
Setting the rent: Agents can track demand for rental property, and achievable rentals in their areas.
Lorraine Dellbridge, rentals manager for Lew Geffen Sotheby’s International Realty in the southern suburbs, Noordhoek and False Bay, says some homes are taking longer to let as landlords hold out for higher rents.
“One reason landlords give for insisting on higher rent is that a similar property nearby gets the rent they are asking. However, the home they are referring to may be nearby but in a better area, say Constantia, while theirs is in Plumstead, so it will never realise the same rental.”
“Carrying an unlet property can be a financial burden. Hard-hit tenants, facing many price increases, are becoming more conservative when deciding where to rent, especially when there is choice.”
Many are choosing to move to cheaper areas where they can maintain their standard similar home in Constantia for under R35 000 would be rare.”
For landlords doing it on their own, part of the attraction of the latest tech solutions are the pricing tools, says HouseME chief executive Ben Shaw.
“A core point our technology solves is fairly and transparently pricing the rental. Some clients have seen yields drop a few basis points, which they’re happy with to find a tenant, and others experienced increases of up to 26% due to our bidding mechanism and market demand dynamics.”
Choosing the tenant: “The landlord needs to be thorough when checking references and affordability and verifying employment,” says Michael Bauer, managing director of SAProperty.Com.
“If prospective tenants meet all qualifying criteria and have a stable income they are likely to pay all their expenses each month and will want a stable living environment. This is the type of tenant one looks for.”
The lease: This document must have terms acceptable to both landlords and tenants and both must understand their rights and responsibilities.
Many inexperienced landlords buy a “standard” lease or download one online. But Bauer warns there are legal aspects to letting property that might not be covered by these.
He says what is acceptable practice in one country or area may not be in another. The Rental Housing Act and Consumer Protection Act (CPA) have had a major impact on consumer rights and on certain clauses in a residential rental lease.
Clauses regarding the notice period of cancellation or annual rental increases should be checked in case they are outdated or unlawful. For example, in the past most leases included a standard 10% year- on- year rent increase; today most tenants would want to negotiate that percentage (See story alongside).
The CPA prohibits “contracting out of law”, which implies that when a lease is signed at a certain rent for a specified time, that is the rate that applies for the period. A new term would need a new rent negotiated.
Bauer says this may mean it is worth the landlord’s while to keep a good tenant happy and agree to a lower rent increase.
Sometimes tenants’ circumstances change, and they need to move before the lease expires. The CPA allows a tenant to give just 20 working days’ notice to cancel the lease. The landlord is allowed to charge a “reasonable” penalty to help recoup losses incurred.
Bauer says in most situations one month’s rent “should be enough as a penalty for cancelling a lease”. This amount is not to be confused with repayment of the deposit or payment of the final month’s rent.
The landlord must never allow tenants to renege on their last month’s rent as the deposit might not cover damage or unpaid bills.
The deposit: Most tenants look after a property well and pay rents and utility bills on time. But not always.
PayProp statistics show the average non-performing tenant leaves with R6 781 in unpaid rent, R2 168 in unpaid utility bills, and R3 894 in damage to the property – a total of R12 843, or 1.9 times the average rent.
Bauer says landlords must hold at least one and a half month’s rent as deposit to cover losses.
When the lease is up and the landlord finds damage, he can’t just pick a figure to reimburse himself. Under the Rental Housing Act, he can charge tenants only for damage if they did a detailed inspection of the property before the tenants moved in. This inspection list, complete with date- stamped photos, must be signed by landlord and tenant, and attached to the lease.
It is advisable for the landlord, or his agent, to do regular property inspections throughout the period of the lease. This is also when tenants can ask for repairs to be carried out.
Paul Stevens, chief executive of Just Property, says repayment of the deposit at the end of a lease is a common area of conflict. This is often because tenants want their money back as soon as possible to pay the deposit on their new rental property.
Landlords have to be sure the property is returned in good condition, and all rent and outstanding utilities bills have been paid.
Usually a lease stipulates that an outgoing inspection will be carried out within seven days of the end of the lease. If there is no damage, the deposit should be refunded within the period.
But, if damage does need repairing, the landlord or agent usually has another 14 days to do so. The tenant must be given invoices as proof of costs.
“The repayment period can stretch to 21 days, in keeping with the terms of the lease. Many tenants do not understand this clause, and that’s where potential for conflict arises.
The damage deposit can be increased each year in proportion to the rent increase, and this top-up amount should be paid when the first increased rent is paid.
‘Repayment of