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Full rental service is the best

30 Aug 2010
Although there are two clearly defined types of rental property management, those working this field find that property owners often do not fully understand the differences between them.

Lanice Steward, MD of Anne Porter Knight Frank (APKF), says in the first type of rental contract, the agent undertakes to try and vet a tenant with whom, subject to the landlord’s approval, a lease is then signed. After this the agent is no longer involved.

In the second type of agreement, the agent takes on the full responsibility not only for finding and vetting the tenant, but also for managing the property efficiently.

This involves collecting the rent on time (and bringing pressure to bear when the tenant defaults on payments), ensuring that the property is properly looked after and that the tenant is not upsetting his neighbours (especially important in multi-unit sectional title schemes) and is paying the levy and service charges.

In both types of contract, said Steward, a good agent will undertake to do thorough credit and previous tenancy checks. This, she said, many landlords cannot do on their own because they do not know where the bureaus and credit checkers can be found nor have they paid the subscriptions for these services.

On occasion, said Steward, APKF have found that the landlord does not understand the level of service to which he is entitled. He may pay only for the tenant finding service, but will expect ongoing surveillance of and checks on the property.

Alternatively, he will sign for the total management package but without realising that this includes all the services outlined above – especially the chasing of defaulting payers.

“Where a landlord does not understand his rights, there is a grave danger that the tenant will not fulfil his obligations, with the long-term result that the property deteriorates and loses value. Some 25% of SA sectional title schemes have at one stage seen this happen and some have proven beyond rescuing.

In other cases, said Steward, the landlord will imagine that he himself is fully competent to manage the unit on his own. Experience shows that all too often his leads to his checking up on it too little, to payment defaults and maintenance neglect and possibly to the tenant having to be evicted, a lengthy and expensive process on which the costs and losses are almost never recoverable.

A good managing agent, added Steward, will make the life of the buy-to-rent investor calm and untroubled.

“It is, in my view, very definitely worthwhile accepting the 10% or 12% commission, paid monthly, to achieve the peace of mind that good agents make possible.”

Meanwhile, a recent report has shown that this year 9% of SA tenants in residential properties are not paying rents at all – and 28% are paying late.

“The figures are not nearly so bad in portfolios which employ reputable agents, but they do show that additional care in the selection of tenants is now essential,” says Tony Clarke, MD of Rawson Properties.

This process, he adds, is so crucial to the landlord’s future welfare that he should be involved in the checking process.

The first step, says Clarke, should be to look at the tenant’s rental track record. This entails contacting his previous landlords and agents, and this check should go back several years.

“If, for any reason, the tenant tries to limit the names and contact details of previous landlords, that in itself is a cause for suspicion,” says Clarke.

A check should also be made on the prospective tenant’s credit history.

Here, says Clarke, the danger is that the agent will use only one credit bureau – but two or three should be consulted.

“We have had several cases where payment defaults were missed by one bureau but picked up by another – a surprisingly bad credit history can sometimes go undetected.

One of the dangers here, adds Clarke, is that failures to pay rent may have gone unrecorded.

“We find that some tenants will see their landlord as the last people they should pay. They will be conscientious about paying their retail accounts, but very slack about their rents. If a landlord is not in the habit of reporting defaulters, a shockingly bad payer can end up with what is apparently a clean credit record.”

Another danger, said Clarke, is that the landlord may give his tenant an undeservedly good rating simply because he wants to get rid of him. Again, therefore, it is essential to check with previous landlords, not just the most recent.

A really shrewd landlord or agent, Clarke adds, will visit the home previously occupied by the tenant and ask the neighbours how they found him. Especially in multi-unit sectional title projects this can be a “very revealing” exercise.

Another check which should always be carried out is with the tenant’s employer – the applicant may well be on the point of losing his job or under surveillance. In big companies, the HR department may have a dossier on the tenant’s work performance which they will not divulge, but from which they may be willing to extract a few comments.

Clarke warned that in tough economic times it can be foolish to insist on the prescribed rental increases.

“If the tenant is a good payer, but is now struggling, it can be worth your while to reduce the rental increase.”

It is, also, he said, not a good idea to pressurise the agent too hard to find a new tenant if the property has become unoccupied.

“Tenants chosen in a hurry tend to be bad tenants. Be patient and sacrifice two or three months rent. This is infinitely preferable to the expensive, long drawn-out process of getting a tenant evicted.

“I have known cases where a landlord has lost several years’ rent because he simply did not have the time to institute legal proceedings against a poor payer.”

When a new tenant takes occupation, said Clarke, photographs, or better still, a video should be taken throughout the house to record its condition on handover. Copies of the photos or video should be lodged with the tenant.

Later, if the tenant decides to leave, he may refuse to pay his last month’s rent on the grounds that his initial one month’s upfront deposit payment will cover it.

However, all too often, says Clarke, if a photographic record was made, it can be shown that the repairs, now needed (for which the tenant is legally responsible) will cost as much – or more – than one month’s rent.

The tenant must, therefore, be made to pay his last month’s rent in full.

“In our view, the initial deposit should cover two months’ rent. This is increasingly regarded as the norm.”

Clarke said that in a well run rental agency, the defaulting payments should not be above 1% of the total portfolio.

“I can point to many agencies in the Rawson group and elsewhere which are achieving this – and the main reason is always that they have done their checks with great thoroughness.” – Eugene Brink

Readers' Comments Have a comment about this article? Email us now.

Oh dear and where does one find reputable agents??? In the complex where I live a company called Eldorado placed tenants into a unit that has caused such enormous trouble you will not believe. Better than any soapie I will tell you! They placed a lady and her family in a tiny three bedroom unit. This agent put a husband & wife, mother in a wheelchair, daughter and three huge dogs that were very vicious (without getting permission from the Body Corporate) and a large bird that squawks nonstop. Permission would have been denied because the walls are only 900mm – 1m high. The dogs got over the wall and attacked the neighbour and their little dog resulting in the neighbour and her small grandchild being placed in enormous danger (the grandmother was bitten). This tenant (Mrs Sobramony) never paid her rent and the poor owner never got paid for over a year whilst this lady and her family wasted water constantly (at the cost of the Body Corporate), lived their free for over a year, disrupted the lives of the trustees and neighbours constantly whilst never paying. The owners and trustees were inconvenienced and in a legal battle for over a year whilst this lady merrily went on doing exactly what she pleased whilst the “Claiming to be good agent Eldorado” did nothing to sort the matter out. They had the cheek to phone another owner asking whether they could find tenants for them..... they will never be allowed back into this complex again ...... and the tenant ..... she has moved on to her next victim after 12 months court battles. – Anonymous

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