What tenants and landlords need to know
Reprinted from Property24 – 2021-11-02
The latest rental index published by PayProp held good news for landlords: national rental growth rates appear to be stabilising and all major provinces have seen improvements in tenant payment behaviour.
While this implies the worst is over, for now, Jacqui Savage, National Rentals Manager for the Rawson Property Group, says pressure remains high on both landlords and tenants.
“On the tenants’ side, affordability is critical. A huge number are still feeling the effects of the pandemic on their income and job stability. This is particularly prevalent in the low end of the market – properties with monthly rentals of R3 000 or lower,” she says.
Savage says above-CPI increases in utilities and municipal charges are only going to make it more difficult for struggling tenants to meet their monthly rental obligations going forward. To minimise the fallout, Savage urges tenants in financial difficulty to open communication channels with their landlords early, before their payment situation becomes dire.
“It’s important to remember that landlords often rely on rental income to meet their own financial responsibilities,” she says. “If rental stops coming in without warning, they could find themselves in real trouble. This doesn’t put them in a particular understanding frame of mind when addressing the issue with their tenants, and generally results in poorer outcomes for everyone involved.”
What should a landlord do with a non-paying tenant?
“The first step that one should take in the unfortunate situation of a non-paying tenant is to look at the lease agreement. Most importantly, the landlord must look at the payment clause together with the breach clause, advises property legal experts Abrahams & Gross.
“The payment clause usually stipulates an amount and a date by which payments should be made. This enables the landlord to prove that the tenant is in breach. The breach clause usually provides that in the event of non-payment, the landlord has the right to take certain actions, such as claiming specific performance or cancelling the agreement. The breach clause usually also sets out the amount of time that the landlord needs to afford the tenant to remedy the breach, before the landlord may take action.
With advanced warning, however, Savage says landlords can often take steps to protect their own financial stability, enabling them to better help tenants ride out tough times.
“This kind of proactive approach is going to be key for rental property performance, all-round,” says Savage. “Landlords able to identify and address issues early on will experience far better tenant retention and fewer vacancies as a result.”
Vacancies remain a problem thanks to affordable property purchases eroding one end of the tenant pool and financial constraints eroding the other. The Western Cape is currently experiencing the highest vacancy rates at 14.38%. The Eastern Cape has the lowest vacancies at 4.28%.
“We’re still very much in an oversupply situation, with more rental properties available than qualified tenants to fill them,” says Savage. “That means landlords need to offer value for money to secure the top-quality tenants who have their pick of a huge range of options.”
Waiting until lease renewal time to assess this value proposition can be an expensive mistake for landlords to make.
“These days, by the time lease renewal comes around, there’s a good chance your tenant has already found a more attractive option,” Savage explains. “If you don’t want to risk losing good tenants to greener pastures – and sitting with a vacant property to fill – you need to remain competitive at all times. That means staying on top of property repairs and maintenance, and keeping in line with pricing trends, even if that involves rental adjustments halfway into a lease.”
Gerhard Kotzé, MD of the RealNet estate agency group, advices tenants to check how far their rent stretches, before signing a lease or they could find themselves having to pay for things that were not in their budget.
“Even when they have a written lease, tenants are often uncertain about what their monthly rent actually includes, especially if they are renting a flat or townhouse in a sectional title complex.”
“In sectional title schemes, for example, the owner of each unit is responsible for their own interior maintenance and repairs – which should be covered by the rent being charged if they let their units out. However, to make things easier, especially if they don’t live close to their rental units, landlords can pass the responsibility for some maintenance and repairs on to their tenants, in return for a reduction in rent.
On the other hand, he says, tenants in sectional title developments usually have no responsibility for the upkeep of building exteriors or the common garden or parking areas. “This is handled by the trustees on behalf of the body corporate – which is the collective of all the unit owners in the scheme – and is not covered by tenants’ rentals but by the levies that those owners must pay.
Kotzé says another thing for tenants to consider is how they will be billed for municipal services – that is, whether they will get an individual account reflecting their own, real usage, or whether they will be charged according to a “participation quota” (PQ) that depends on the size of their unit in relation to the whole sectional title scheme.
While rental property yields may be lower than desired at present, Savage says there are still silver linings for landlords who know where to look.
“Low property prices aren’t just a pro for tenants looking to become homeowners,” she says. “They also present great opportunities for landlords to expand their rental portfolios very affordably. These will, of course, take some time to become profitable under current circumstances, but would provide an excellent investment base to capitalise on growth when the market inevitably swings up again.”
As for what market to target with new rental investments, Savage says the most popular price range is between R4 500 and R7 000. If reliability is your top priority, however, the R7 000 to R12 000 range currently delivers the best tenant payment performance.
“In reality, there are opportunities at all price points. Like any other investment, the key to making the most of these lies in intelligent asset management. Having a rental expert on board can make that process a lot easier, helping you minimise risks and maximise returns, now and in the long term.”
Simon Dippenaar & Associates, Inc. is a Cape Town law firm of specialist eviction lawyers, now operating in Johannesburg and Durban, helping both landlords and tenants with rental property issues. Contact one of our eviction attorneys on 086 099 5146 or simon@sdlaw.co.za if you need advice on the eviction process or if you need help with any aspect of a lease or landlord-tenant relations.
