When Rent Increases Hurt

When Rent Increases Hurt

Private Property South Africa
Lea Jacobs

Times are getting tougher for South Africans. The cost of electricity, petrol and food are soaring. It has also become far more expensive to own a home, and the amounts paid on property rates have been steadily climbing over the years, as has the cost of maintaining a home.

Although tenants do not have to contend with maintenance costs, they are still faced with having to fork out far more for day to day expenses and many are beginning to dread that time of year when rental increases come into play.

For many years, most landlords put up rentals by an annual 10 percent. Accepted as being a part of life, the increase was generally budgeted for and if the property was deemed too expensive, tenants moved on to a better deal. This scenario is, however, beginning to change and tenants are becoming far more budget conscious. Those who are reluctant to move are now negotiating lower rental increases - and are, in many cases, getting them.

Carine De Beer, an advocate from Legal2Landlords, says that more and more tenants are no longer prepared to sign a lease with an escalation clause of 10 percent and instead are asking for an inflation related escalation. Interestingly, the bargaining appears to be paying off and De Beer notes that many landlords are willing to compromise by only increasing the rent by around six or seven percent. Compromise appears to be the key word in these instances as landlords will be the first to tell you that despite lower interest rates, the increase in municipal rates is beginning to hurt.

"Tenants love to tell me that they are paying off the landlord's property," says De Beer, "but, the harsh reality of what a bond repayment on the market value of the property would amount to generally puts paid to that argument. Add to this the steep rise in rates and taxes and it becomes hard to argue that landlords are greedy."

It also pays to remember that some landlords don't have to compromise at all. The more sought after an area, the less likely a landlord is going to be willing to haggle over the increase. This makes sense. If the property in question has a queue of potential tenants who are more than willing to pay the rent, why should a landlord agree to let the home out for a lesser sum One would assume that a good, longstanding tenant would automatically be in line for some sort of rebate, but again, depending on the terms of the lease, this is not always the case.

"It's a bit of a catch-22 situation", says De Beer, "because a landlord often only knows that it is indeed a good tenant when they have occupied for a year or more. We often find that these 'older' leases have a higher escalation rate of around 10 percent, some even 12 percent. We have had a few instances where the parties have approached our company to re-negotiate the extension of the lease at a lower escalation rate. In those instances where the landlords want to retain reliable tenants, they are prepared to lower the escalation rate. Where the negotiations have failed, the tenants often seek alternative, cheaper accommodation, simply because they cannot keep up with rising costs in general."

Communication with rent increases really does appear to be key. There is nothing worse than a tenant who simply can't keep up financially and then falls in arrears with rental payments. The ensuing legal process is expensive, takes time and is exhausting. A good tenant would do well to present his landlord with a typical, honest monthly budget.

"Instead of an increase that exceeds inflation, the tenant could offer to take over from the garden service, or to do the pool maintenance themselves. Any sign of goodwill and willingness to contribute what they can, even if it is only time and labour, could well convince a reluctant landlord that he has decent tenants worth holding on to."

Times are tough and all indications are that things are set to become even tougher. Let the bargaining begin!

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