Tenant ‘Red Flags’ and How to Avoid Them
The wrong tenant can have a lasting negative effect. The residential property industry continues its upward trajectory, and investors are getting in on the action. However, with the rise of investors choosing to take advantage of low prices and invest in ‘buy-to-let’ properties comes an excess supply of rental properties in areas with high supply and low demand. Residential rental vacancies in Gauteng are currently sitting at a high rate of 11.9%, while the Western Cape is sitting at a slightly lower 11.4% vacancy rate, according to TPN’s 2021 Q4 data. Although landlords may be getting desperate, industry experts advise you to think twice before signing on the first tenant who comes your way. Placing a tenant in your vacant property might help curb your losses in the short term, but putting the wrong tenant in can have a lasting negative effect. Contrary to popular belief, the law protects both the landlord and the tenant’s rights—and both parties are strongly urged to do their due diligence prior to signing a lease agreement. In terms of obligations, those of the tenant include the requirement to pay rent promptly, to take care of the property, and to return the property in the same condition in which it was received. Landlords, on the other hand, are required to provide the tenant with access to a safe home in good working order. They are also required to maintain the exterior of the building and to protect the tenant’s deposit. While some properties are enjoying an influx of rental applications, others are desperately seeking tenants—both of which are at risk. Receiving a rental application is a big relief for a landlord, so much so that they often overlook several red flags. Unfortunately, the price of avoiding the warning signs and securing a problem tenant carries a high price for landlords. This is because evicting tenants is a long and costly process in South Africa, requiring landlords to serve tenants with a ‘tenant eviction notice’ before they are entitled to a court hearing. Even if the court process rules in the landlord’s favour, only a court-appointed sheriff is allowed to remove the tenant’s belongings – and this process can take weeks, if not months. The obvious red flags While some of these red flags can be avoided by using a reputable letting agent (and agency), some of these obvious ones are often overlooked. A poor credit score A credit score refers to one’s ability to pay back their debt on time. The COVID-19 pandemic has further exacerbated high levels of debt in South Africa, and this will be a prevalent issue for years to come. Therefore, prior to signing on a tenant, a thorough credit check should be run. A credit score of 610-plus is generally acceptable. Affordability The general rule of thumb is that one’s monthly rental should not exceed 30% of their monthly salary. Accordingly, an assessment of a prospective tenant’s affordability will give a landlord a clearer idea of their monthly income and expenditure. Agents and landlords should ensure that the tenant has enough income left over to pay their rent, electricity, and water (where required). References A tenant will require a reference from previous landlords to determine their behaviour as a tenant. A reference tells the landlord who the tenant is, and whether they are reliable. If the prospective tenant has no prior rental history, they will need to either arrange a co-signature on their lease agreement or offer to put another credible reference forward, such as their employer. The not-so-obvious red flags This list of potential red flags includes those that do not readily come to mind, which results in many landlords overlooking them in the tenant screening process: Employment history Employment is hard to come by. However, some prospective tenants’ short employment histories can tell a different story. Job hoppers or people who run into trouble in the workplace can sometimes display this kind of behaviour in their home lives as well. Criminal history Performing a criminal background check may sound extreme, but this is a standard part of the hiring process in many industries—and rentals should be no different. Some companies such as TPN provide a SAPS criminal background check to landlords as part of their Credit Check offering to ensure that your tenant is safe, honest, and reliable. General behaviour Quite often there are red flags from the very first engagement with a tenant. In some cases, they are hard to reach, or can be extremely difficult and demanding for no apparent reason. This is another reason why it’s important to use a rental agent whose judgement you can trust. Ensuring a good tenant-landlord relationship Here is some advice that will help landlords to ensure a smooth relationship with their tenant: Always communicate In cases where the tenant already occupies the property, be sure to communicate—and put everything in writing. Remain calm and rational should something go wrong and seek advice from estate agents and, when necessary, your attorney. Don’t be fooled by fast cash Don’t fall into the trap of accepting a large sum of cash upfront instead of regular rental payments. Just because they have the money now, doesn’t mean they’ll have it in four months’ time when the next payment is due. Don’t rush In cases where the tenant is dragging their feet about signing the rental agreement, don’t lose hope yet. Try your best to clearly communicate, perform all the necessary checks, answer any questions they may have, and spend a few days mulling over your decision before jumping into a lease agreement. Trust your gut Much like in any relationship, if something feels off when you’re engaging with a prospective tenant, trust your instincts. Paperwork can be forged, but your intuition is rarely wrong. WRITTEN BY GRANT SMEE Grant Smee is a property entrepreneur and a managing director. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles
The ABCs of lease agreements in South Africa
Navigating the world of lease agreements can be complex and fraught with potential pitfalls. In South Africa, these agreements are an essential tool for establishing clear expectations and protecting the interests of both landlords and tenants. Whether you’re a seasoned property manager, a first-time landlord, or a prospective tenant, understanding the nuances of these contracts can be critical to ensuring a positive leasing experience. Lease agreements, contrary to the perception of some, are not just a bureaucratic formality. They are a necessity that provides certainty by explicitly outlining the responsibilities of all involved parties. A well-drafted lease agreement reduces the likelihood of disputes arising and provides a solid foundation for resolving them if they do. Without a written agreement, any disagreement could become a “he-said-she-said” scenario, making it challenging to establish the truth of the matter. A common question often asked by landlords is: “What happens if my tenants stop paying rent? Can I evict them?” The answer, typically, should be found within the lease agreement itself, which usually outlines the procedures for dealing with such breaches of contract. However, in the absence of a written agreement, landlords can resort to the Rental Housing Act, which stipulates giving tenants a 30-day notice to vacate the premises. Equally, tenants may wonder what their rights are in cases where their landlord sells the property they’re leasing. Again, the lease agreement comes to the rescue, taking precedence over a sale agreement. In this case, the landlord is obligated to provide at least a 30-day notice to the tenant, allowing them to make necessary arrangements. It’s also important to note that landlords do not have the right to disconnect municipal services due to late or missed payments by the tenant. Such actions are considered illegal, and tenants have the right to institute legal proceedings to restore access to these services. In the event of damage to a rental property, the process of recovery and repair can be made smoother by a well-executed lease agreement. It’s crucial to conduct entry and exit inspections, with both the landlord and tenant present. This allows for a clear record of the property’s condition at the start and end of the lease. A tenant is granted a minimum of seven days from the occupation date to submit a snag list, providing a comprehensive overview of any existing issues. For landlords dealing with the scenario of squatters, it’s important to follow due process as outlined in the Prevention of Illegal Eviction from Unlawful Occupation of Land Act 19 of 1998. It’s illegal to hire a security company, change the locks, or restrict access to municipal services in an attempt to evict these occupants. Instead, a court order must be obtained. But what happens when disputes arise that can’t be resolved amicably? Thankfully, there are avenues for resolution. Claims can be brought to the magistrate’s court in the district where the agreement was signed or where the person defending the action resides. Alternatively, the Rental Housing Tribunal can be engaged, which does not require legal representation and can be a cost-effective solution. The world of lease agreements may seem daunting, but it doesn’t have to be. With a well-drafted agreement and a good understanding of your rights and responsibilities as either a landlord or a tenant, the leasing process can be a smooth and positive experience. Don’t take a chance on a handshake agreement when you can have the security of a professionally drafted lease agreement at your disposal. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes and should not be construed as legal advice. Powered by SucceedGroup