14 February 2013

Zimbabwe: Aim for Win-Win in Rent Review Talks


The start of a new year normally signals the end of most lease periods culminating in new negotiations, some of which might be protracted. Normally in such negotiations there should be a win-win situation that results in the landlord getting their investment return and the tenant getting a reasonable or affordable rental increase.

Several property analysts have put forward their suggestions on the best methods of tackling this problem for the short and long term.

In this article I will attempt to deal with the issue on a person by person basis while allowing those entrusted to solve it on a mass level to implement their strategies.

The best way to ensure transparency and fairness between a landlord and tenant is through having a lease or tenancy agreement. A lease is an agreement that is entered into by a landlord and a tenant detailing condition of their arrangement over the property to be leased.

In this particular article, I will only refer to the rent review clause. The absence of a lease with a properly drafted rent review clause limits the leverage either party can have when it comes to rent review.

In the absence of such a clause the landlord can verbally review the rent upwards arbitrarily and unexpectedly or may fail to review the rent at all because of uncertainty as to when to effect the review.

The rental review clause therefore gives foreknowledge to both the tenant and landlord as to when a review is expected.

It gives both parties ample time to come up with reasons why the rent should or should not be reviewed.

This ensures that the negotiations will not be uncomfortable or one-sided as is the case with surprise reviews.

It is an unfortunate truth that a large segment of our rental market is not covered by lease agreements.

Letter of Intent

To make rent increases more palatable for this segment of the market the landlords are encouraged to offer letters of intent to review maybe three months before the intended increase is to take effect.

It will be prudent to offer the reason for the basis of review, be it market rate or inflation based.

It allows the tenant more time to investigate on the reason and prepare financially and mentally for the pending review.

The negotiating party must always be equipped with the prevailing market prices before presenting their extenuating circumstances.

It allows the rent negotiations to be progressive, as both parties will be aware of the market rate.

If it is the landlord proposing an increase in rental, a presentation of the higher prices being charged in similar properties coupled with the presentation of the actual increase one wants to effect will allow the tenant to appreciate one's consideration for their tenancy.

If it is the tenant wishing to contest the increase, a presentation of the general rents being charged for similar properties coupled with an understanding and appreciation of the unique features of the subject property, will give the landlord an appreciation of the care one has for that particular property.

It also enlightens the landlord about the options available. At this point one can offer to pay the average rate of rental charged on similar properties.

If the landlord or managing agent has been negligent in maintaining the rents at or close to market rates, it is improper or unfair to punish the tenant by raising the rental exponentially to match market prices.

Landlords in such instances feel as if they were prejudiced of income for such long periods and because of that they try to recoup lost income by immediately raising rents to match market prices because the tenant had been benefiting from the low prices.

Such a method is normally counterproductive and normally leads to disputes. The most effective way is to notify the tenant of intention to match market prices and propose to raise the rentals in stages.

One can raise it by a reasonable figure every three months until it matches prevailing market rates.

This method allows the tenant to understand the landlord's intentions while ultimately achieving the intended goal.

The most effective ammunition a tenant can have in a rent review negotiation is a history of good tenancy.

This does not only involve timely payment of rentals and bills, although such a history will significantly improve one's chances of achieving intended goal. Good tenancy in essence also involves acts of ownership, where the tenant intentionally improves the condition of the property they reside in.

State of Property

Such actions must be communicated to the landlord, firstly because of their right to know what happens on their property and mainly because the information can only benefit the tenant if the landlord is aware of improvements.

My experiences tell me that most landlords are more concerned about state of property and its overall market value than just rental return.

It is difficult for landlords to increase on good tenants, where such increases are proposed, landlords are normally willing to listen and accommodate the tenants' mitigating circumstances.

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