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Why lease renewals need to be done more carefully this year

02 Dec 2020

The financial impact of the Covid-19 pandemic could see tenants looking to negotiate previously stipulated escalation percentages in their renewed lease agreement. Experts share their advice.

With many residential property leases coming up for renewals, tenants and landlords will have to weigh the unusual economic circumstances caused by the Covid pandemic quite carefully.

READ: What tenants want? | Two things landlords can do to secure good tenants 

It has been a challenging year for landlords and tenants alike. While some tenants may find it tricky to renew their leases, those who acted with integrity are likely to find landlords willing to renew their lease and possibly even on better terms, says PG van der Linde, rentals manager for Seeff Pretoria East.

Many tenants may find that the landlord will look to conduct renewal credit checks to confirm the tenant’s affordability and do a renewal inspection and tenants should be prepared for this.

Craig Watchurst, a rental agent with Seeff City Bowl says lease agreements often make provision for a renewal, which must be exercised within a particular timeframe.

"If the tenant fails to exercise the option timeously but is a good tenant, the landlord will often have no issues with renewing, but this is not a given right.

"To be safe, if the tenant has not heard from the landlord regarding the renewal, he should indicate what he intends to do at least one month prior to the expiration of the lease. If no renewal option or agreement is reached, the lease will simply terminate, and the tenant will need to vacate by 12pm."

'Affordability is vital when renegotiating'

The rental market is seeing a high level of vacancies right now as the financial impact of the Covid-19 on the average South African takes its toll -  TPN Rental Data for Q3 highlights the hardest-hit sectors with soaring vacancies are the properties at the low-end, rentals <R3,000 pm, with 17% of properties recorded as vacant; as well as the luxury property markets, as rentals >R25,000 pm contracted by fifty percent from 1.8% market share to 0.9% q-o-q spurred on by a 23% vacancy rate. 

 
However, no sector of the rental market has been left unscathed with double-digit vacancies across the board, according to TPN. Although affordable properties in the R4,500 to R7,000 and R7,000 to R12,000 range with 10.31% and 10.34% vacancies respectively, were the least impacted. 

It remains important to ensure the new rental is affordable and the increased percentage reasonable given the current economic climate, says Jo Giraudeau, rentals and operations manager for Seeff South Coast.

"If there is a renewal clause in the original lease, then the lease must generally be on the same terms except for the monthly rental which could possibly change but must be agreed upon by the landlord prior to the option of renewal being given to the tenant. Failing this, the landlord can change the terms and if these are not acceptable, the tenant has every right to give his/her notice to vacate at the end of  the original lease period."

'Negotiating still possible with stipulated escalation percentage'

Barbra-Ann Briner and Vivien Adler, rentals agents with Seeff Atlantic Seaboard point out that even if there is a stipulated escalation percentage, it is still possible to negotiate the rental amount. If the landlord is not amenable, the tenant would need to decide whether to accept the new rental or move. Our advice to a landlord would be that if it is a good tenant, they should look at how they can be accommodating in the current pandemic-climate.

But can you deal with the agent who placed you in the premises, or must you deal directly with the landlord?

"Agents usually have all the tools on hand to motivate a lower rate and the experience to deal with individual personalities. If it is an unmanaged rental, you can deal directly with the landlord or renew with the agency for the further period on an unmanaged basis using the agency’s assistance to conduct inspections and other admin options provided," adds Briner and Adler.

'Ensure your new lease agreement is done in writing'

Van der Linde says it is important to ensure there is a written agreement which can either be by way of an addendum to the original lease or a new lease agreement.

"Ensure the agreement reflects everything that was agreed with the landlord. A further benefit of dealing with a rental agent is that they usually have up to date rental contracts in place, which are legally compliant.

SEE: Knowing your rights and obligations as a tenant can save you money

If there is no provision made for the period for which the lease must be renewed, then the landlord and tenant need to come to an agreement, adds Van der Linder.

"If the period proposed is not suitable to the tenant, once again it may then be in the tenant’s best interest to give notice to not renew his/her lease agreement period and vacate when the term reaches its end."

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